Rosetta Stone 2014 Annual Report Download - page 69

Table of Contents



Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active;
and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Significant inputs to the valuation model are unobservable.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, accounts payable
and other accrued expenses approximate fair value due to relatively short periods to maturity.

Property and equipment are stated at cost, less accumulated depreciation. Depreciation on property, leasehold improvements, equipment, and software
is computed on a straight-line basis over the estimated useful lives of the assets, as follows:
Software
3 years
Computer equipment
3-5 years
Automobiles
5 years
Furniture and equipment
5-7 years
Building
39 years
Building improvements
15 years
Leasehold improvements
lesser of lease term or economic life
Assets under capital leases
lesser of lease term or economic life
Expenses for repairs and maintenance that do not extend the life of equipment are charged to expense as incurred. Expenses for major renewals and
betterments, which significantly extend the useful lives of existing property and equipment, are capitalized and depreciated. Upon retirement or disposition
of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.

In accordance with ASC topic 360, ("ASC 360"), the Company evaluates the recoverability of its long-lived assets. ASC
360 requires recognition of impairment of long-lived assets in the event that the net book value of such assets exceeds the future undiscounted net cash flows
attributable to such assets. Impairment, if any, is recognized in the period of identification to the extent the carrying amount of an asset exceeds the fair value
of such asset. During 2014, the Company recorded a $0.2 million impairment expense related to the abandonment of a previously capitalized internal-use
software project. There were no impairments of its long-lived assets during the year ended December 31, 2013.

Intangible assets consist of acquired technology, including developed and core technology, customer related assets, trade name and trademark, and
other intangible assets. Those intangible assets with finite lives are recorded at cost and amortized on a straight line basis over their expected lives in
accordance with ASC topic 350,  ("ASC 350"). Annually, as of December 31, and more frequently if a triggering event
occurs, the Company reviews its indefinite-lived intangible asset for impairment in accordance with ASC 350. This guidance provides the option to first
assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining
whether it is necessary to perform the quantitative test. If necessary, the quantitative test is performed by comparing the fair value of indefinite lived
intangible assets to the carrying value. In the event the carrying value exceeds the fair value of the assets, the assets are written down to their fair value. The
Rosetta Stone trade name is the Company's only indefinite-lived intangible asset. There has been no impairment of intangible assets during any of the
periods presented.

Goodwill represents purchase consideration paid in a business combination that exceeds the values assigned to the net assets of acquired businesses.
The Company tests goodwill for impairment annually on June 30 of each year or more frequently if impairment indicators arise. Goodwill is tested for
impairment at the reporting unit level using a fair value approach, in
F-12