Zynga 2014 Annual Report Download - page 72

Table of Contents
We recognize advertising revenue for branded virtual goods and sponsorships, engagement advertisements and offers, mobile
advertisements and other advertisements as advertisements are delivered to customers as long as evidence of the arrangement exists (executed
contract), the price is fixed or determinable, and we have assessed collectability as reasonably assured. Certain branded in-game sponsorships
that involve virtual goods are deferred and recognized over the estimated life of the branded virtual good or as consumed, similar to online game
revenue. Price is determined to be fixed and determinable when there is a fixed price in the applicable evidence of the arrangement, which may
include a master contract, insertion order, or a third party statement of activity. For branded virtual goods and sponsorships, we determine the
delivery criteria has been met based on delivery information primarily from third parties. For engagement advertisements and offers, mobile
advertisements, and other advertisements, delivery occurs when the advertisement has been displayed or the offer has been completed by the
customer, as evidenced by third party verification reports supporting the number of advertisements displayed or offers completed.
Income Taxes
We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements
or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future
changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits
that are not expected to be realized based on available evidence. We account for uncertain tax positions by reporting a liability for unrecognized
tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any,
related to unrecognized tax benefits in provision for income taxes.
In June 2013, the Financial Accounting Standards Board ratified Accounting Standards Update 2013-11, “Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” which
concludes an unrecognized tax benefit should be presented as a reduction of a deferred tax asset when settlement in this manner is available
under the tax law. We adopted this amendment in the first quarter of 2014, which resulted in a reduction of non-current liabilities of $33.3
million.
Business Combinations
In line with our growth strategy, we have completed acquisitions to expand our social games and mobile offerings, obtain employee talent,
and expand into new markets. We account for acquisitions of entities that include inputs and processes and have the ability to create outputs as
business combinations. We allocate the purchase price of the acquisition, which includes the estimated acquisition date fair value of contingent
consideration, to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the
purchase price over those fair values is recorded as goodwill. Determining the fair value of such items requires judgment, including estimating
future cash flows or estimating the cost to recreate an acquired asset. If actual results are lower than estimates, we could be required to record
impairment charges in the future. Acquired intangible assets are amortized over their estimated useful lives. Intangible assets with indefinite
lives are not amortized but rather tested for impairment annually, or more frequently if circumstances exist which indicate an impairment may
exist.
Acquisition-related expenses and restructuring costs are expensed as incurred. During the one-year period beginning with the acquisition
date, we may record certain purchase accounting adjustments related to the fair value of assets acquired and liabilities assumed against goodwill.
After the final determination of the fair value of assets acquired or liabilities assumed, any subsequent adjustments are recorded to our
consolidated statements of operations. We record changes in the fair value of contingent consideration liabilities within operating expenses in
our consolidated statement of operations each reporting period.
69