Quest Diagnostics 2011 Annual Report Download - page 81

Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are reported at realizable value, net of allowances for doubtful accounts, which is
estimated and recorded in the period the related revenue is recorded. The Company has a standardized approach
to estimate and review the collectibility of its receivables based on a number of factors, including the period they
have been outstanding. Historical collection and payer reimbursement experience is an integral part of the
estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the
state of its billing operations in order to identify issues which may impact the collectibility of these receivables
or reserve estimates. Revisions to the allowances for doubtful accounts estimates are recorded as an adjustment to
bad debt expense within selling, general and administrative expenses. Receivables deemed to be uncollectible are
charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of
receivables previously written-off are recorded as credits to the allowance for doubtful accounts.
Inventories
Inventories, which consist principally of testing supplies and reagents, are valued at the lower of cost (first
in, first out method) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Major renewals and improvements are capitalized, while
maintenance and repairs are expensed as incurred. Costs incurred for computer software developed or obtained
for internal use are capitalized for application development activities and expensed as incurred for preliminary
project activities and post-implementation activities. Capitalized costs include external direct costs of materials
and services consumed in developing or obtaining internal-use software, payroll and payroll-related costs for
employees who are directly associated with the internal-use software project, and interest costs incurred, when
material, while developing internal-use software. Capitalization of such costs ceases when the project is
substantially complete and ready for its intended purpose. Costs for maintenance and training are expensed as
incurred. The Company capitalizes interest on borrowings during the active construction period of major capital
projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the expected
useful lives of the assets. Depreciation and amortization are provided on the straight-line method over expected
useful asset lives as follows: buildings and improvements, ranging from ten to thirty years; laboratory equipment
and furniture and fixtures, ranging from three to seven years; leasehold improvements, the lesser of the useful life
of the improvement or the remaining life of the building or lease, as applicable; and computer software
developed or obtained for internal use, ranging from three to seven years.
Goodwill
Goodwill represents the excess of the fair value of the acquiree (including the fair value of non-controlling
interests) over the recognized bases of the net identifiable assets acquired and includes the future economic
benefits from other assets that could not be individually identified and separately recognized. Goodwill is not
amortized, but instead is periodically reviewed for impairment.
Intangible Assets
Intangible assets are recognized at fair value, as an asset apart from goodwill if the asset arises from
contractual or other legal rights, or if it is separable. Intangible assets, principally representing the cost of
customer related intangibles, non-competition agreements and technology acquired, are capitalized and amortized
on the straight-line method over their expected useful life, which generally ranges from five to twenty years.
Intangible assets with indefinite useful lives, consisting principally of acquired tradenames, are not amortized, but
instead are periodically reviewed for impairment. In certain business acquisitions, the Company recognizes in-
process research and development (“IPR&D”) assets apart from other identifiable intangible assets and net
tangible assets. IPR&D assets are initially recognized at fair value and classified as non-amortizable, indefinite-
lived intangible assets until completion or abandonment of the research and development project. Upon
completion of the project, the IPR&D asset becomes a finite-lived, amortizable asset and if the project is
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)