Tucows 2013 Annual Report Download - page 38

deemed non-essential to our business and management believes that deriving proceeds from the sale is strategically more
beneficial to the Company.
Portfolio names that have been acquired from third-parties or through acquisition are included as intangible assets
with indefinite lives on our consolidated balance sheet.
We also generate advertising and other revenue through our ad-supported content site, tucows.com. This site
primarily derive revenue from banner and text advertising. In addition, their revenue is derived from software developers
who rely on us as a primary source of distribution. Software developers use our Author Resource Center to submit their
products for inclusion on our site and to purchase promotional placements of their software.
Critical Accounting Policies
The following is a discussion of our critical accounting policies and methods. Critical accounting policies are
defined as those that are both important to the portrayal of our financial condition and results of operations and are reflective
of significant judgments and uncertainties made by management that may result in materially different results under different
assumptions and conditions. Note 2 to the consolidated financial statements for the year ended December 31, 2013 (“Fiscal
2013”), includes further information on the significant accounting policies and methods used in the preparation of our
consolidated financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate the application of
these estimates, including those related to the recoverability of investments, useful lives and valuation of intangible assets,
valuation of goodwill, fair value measurement of assets and liabilities, product development costs, revenue recognition and
deferred revenue and accounting for income taxes. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts
could differ significantly from these estimates.
Revenue recognition policy
We earn revenues from the following services:
●
Wholesale (Domain Service and other Value-Added Services);
●
Retail (Hover and Ting); and
●
Portfolio (Domain Portfolio monetization and sales).
With respect to the sale of domain registrations and other Internet services, we earn registration fees in connection
with each new, renewed and transferred-in registration and from providing provisioning services to resellers and registrars on
a monthly basis. We also enter into revenue arrangements in which a reseller may purchase a combination of services
(multiple element arrangements). When a standalone selling price exists for each deliverable, we allocate revenue to each
deliverable based on the relative selling price of each of the deliverables. The standalone selling price is established for each
deliverable by the price charged when that deliverable is sold separately by the Company which is vendor specific objective
evidence (“VSOE”). For arrangements where the Company does not sell the deliverable separately, the selling price is
determined based on third party evidence (“TPE”), which is the price at which a competitor or third party sells the same or
similar and largely interchangeable deliverable on a standalone basis. In instances where VSOE and TPE do not exist, the
Company uses an estimated selling price for the deliverable, which is the price at which a company would transact if the
deliverable were sold by the vendor regularly on a standalone basis. Payments for the full term of all services are received at
the time of activation of service and where appropriate are recorded as deferred revenue and are recognized as earned ratably
over the term of provision of service. This accounting treatment reasonably approximates a recognition pattern that
corresponds with the provision of the services during the quarters and the year.
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Revenues derived from provisioning mobile phone service to individuals and small businesses through the Ting
website, are recognized once services have been provided. This is based upon either usage (e.g., minutes of traffic/bytes of
data processed), period of time (e.g., monthly service fees), various regulatory fees imposed on us by governmental
authorities or other established fee schedules. Revenues for wireless services are billed based on the actual amount of
monthly services utilized by each customer during their billing cycle on a postpaid basis. Our billing cycle for each customer
is computed based on their activation date and not on our reporting period. As a result, we are required to estimate the
amount of revenues earned but not billed from the end of each billing cycle to the end of each reporting period. These