Morgan Stanley 2014 Annual Report Download - page 169

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
for as sales are treated as a collateralized financing, in certain cases referred to as “failed sales.”
Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to
repurchase are treated as collateralized financings (see Note 6). Securities purchased under agreements to resell
(“reverse repurchase agreements”) and Securities sold under agreements to repurchase (“repurchase
agreements”) are carried on the Company’s consolidated statements of financial condition at the amounts of cash
paid or received, plus accrued interest, except for certain repurchase agreements for which the Company has
elected the fair value option (see Note 4). Where appropriate, repurchase agreements and reverse repurchase
agreements with the same counterparty are reported on a net basis. Securities borrowed and securities loaned are
recorded at the amount of cash collateral advanced or received.
Premises, Equipment and Software Costs.
Premises and equipment consist of buildings, leasehold improvements, furniture, fixtures, computer and
communications equipment, power generation assets, terminals, pipelines and software (externally purchased and
developed for internal use). Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided by the straight-line method over the estimated useful
life of the asset. Estimated useful lives are generally as follows: buildings—39 years; furniture and fixtures—
7 years; computer and communications equipment—3 to 9 years; power generation assets—15 to 29 years; and
terminals, pipelines and equipment—3 to 25 years. Estimated useful lives for software costs are generally 3 to
10 years.
As a result of an analysis completed by the Company, effective April 1, 2014, the Company revised the estimated
useful lives for software costs from generally 3 to 5 years to generally 3 to 10 years. The adoption of these
revised estimated useful lives for software costs resulted in lower amortization expense of approximately
$86 million in 2014.
Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or, where
applicable, the remaining term of the lease, but generally not exceeding: 25 years for building structural
improvements and 15 years for other improvements.
Premises, equipment and software costs are tested for impairment whenever events or changes in circumstances
suggest that an asset’s carrying value may not be fully recoverable in accordance with current accounting
guidance.
Income Taxes.
The Company accounts for income tax expense (benefit) using the asset and liability method, under which
recognition of deferred tax assets and related valuation allowance (recorded in Other assets) and liabilities for the
expected future tax consequences of events that have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined based upon the temporary differences between the
financial statement and income tax bases of assets and liabilities using currently enacted tax rates in effect for the
year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income tax expense (benefit) in the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that it believes these assets are more likely than not
to be realized. In making such a determination, the Company considers all available positive and negative
evidence, including future reversals of existing taxable temporary differences, projected future taxable income,
tax-planning strategies, and results of recent operations. If the Company determines that it would be able to
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