TripAdvisor 2012 Annual Report Download - page 85

exclude changes in fair value relating to changes in the forward carrying component from its definition of
effectiveness. Accordingly, any gains or losses related to this component are recognized in current income. We
have not entered into any cash flow, fair value or net investment hedges to date as of December 31, 2012.
Derivatives that do not qualify as hedges must be adjusted to fair value through current income. In certain
circumstances, we enter into foreign currency forward exchange contracts (“forward contracts”) to reduce the
effects of fluctuating foreign currency exchange rates on our cash flows denominated in foreign currencies. Our
derivative instruments or forward contracts that were entered into and are not designated as hedges as of
December 31, 2012 are disclosed below in “Note 5—Financial Instruments” in the notes to the consolidated and
combined financial statements. Monetary assets and liabilities denominated in a currency other than the
functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the
effects of changes in spot rates reported in Other, net on our consolidated and combined statement of operations.
Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured
assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-
forward differences. These differences are not expected to be significant due to the short-term nature of the
contracts, which typically have average maturities at inception of less than one year.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are generally due within 30 days and are recorded net of an allowance for doubtful
accounts. We consider accounts outstanding longer than the contractual payment terms as past due. We
determine our allowance by considering a number of factors, including the length of time trade accounts
receivable are past due, previous loss history, a specific customer’s ability to pay its obligations to us, and the
condition of the general economy and industry as a whole.
Property and Equipment, Including Website and Software Development Costs
We record property and equipment at cost, net of accumulated depreciation. We capitalize certain costs
incurred during the application development stage related to the development of websites and internal use
software. Capitalized costs include internal and external costs, if direct and incremental, and deemed by
management to be significant. We expense costs related to the planning and post-implementation phases of
software and website development as these costs are incurred. Maintenance and enhancement costs (including
those costs in the post-implementation stages) are typically expensed as incurred, unless such costs relate to
substantial upgrades and enhancements to the website or software resulting in added functionality, in which case
the costs are capitalized.
We compute depreciation using the straight-line method over the estimated useful lives of the assets, which
is three to five years for computer equipment, capitalized software and website development and furniture and
other equipment. We depreciate leasehold improvement using the straight-line method, over the shorter of the
estimated useful life of the improvement or the remaining term of the lease.
Leases
We lease facilities in several countries around the world and certain equipment under non-cancelable lease
agreements. The terms of some of the lease agreements provide for rental payments on a graduated basis. Rent expense
is recognized on a straight-line basis over the lease period and accrued as rent expense incurred but not paid.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
Goodwill:
We account for acquired businesses using the purchase method of accounting which requires that the assets
acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess
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