eBay 2002 Annual Report Download - page 103

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
Allowances for transaction losses
Our Payments segment is exposed to transaction losses due to fraud, as well as non-performance of
third parties and customers. We establish allowances for estimated losses arising from processing customer
transactions, such as charge-backs for unauthorized credit card use and merchant related charge-backs due
to non-delivery of goods or services, Automated Clearing House, or ACH, returns, and debit card
overdrafts. These allowances represent an accumulation of the estimated amounts, using an actuarial
technique, necessary to provide for transaction losses incurred as of the reporting date, including those to
which we have not yet been notiÑed. The allowances are monitored monthly and are updated based on
actual claims data reported by our claims processors. Customers typically have up to 180 days to Ñle
transaction disputes. Consequently, the time between estimating the loss provisions and realization of the
actual amount is short. The allowances are based on known facts and circumstances, internal factors
including our experience with similar cases, historical trends involving loss payment patterns and the mix
of transaction and loss types. Additions to the allowance, in the form of provisions, are reÖected as a
general and administrative expense in our results of operations, while write-oÅs to the allowance are made
when a loss is determined to have occurred. Recoveries, when collected, are recorded as an increase to the
allowance for transaction losses. As of December 31, 2002, the allowance for transaction losses totaled
$10.1 million and was included in other current liabilities in our consolidated balance sheet.
Funds receivable and funds payable
Funds receivable and payable relate to our Payments segment and arise due to the time taken to clear
transactions through external payment networks. When customers fund their account using their bank
account or credit card, or withdraw money to their bank account or through a debit card transaction, there
is a clearing period before the cash is received or sent by PayPal, usually two or three days. Hence, these
funds are treated as a receivable or payable until the cash is settled.
Foreign currency
All of our foreign subsidiaries use the local currency of their respective countries as their functional
currency. Assets and liabilities are translated at exchange rates prevailing at the balance sheet dates.
Revenues, costs and expenses are translated into United States dollars at average exchange rates for the
period. Gains and losses resulting from translation are accumulated as a component of other
comprehensive income (loss).
Realized gains and losses from foreign currency transactions are recognized as other income and are
insigniÑcant for all periods presented.
Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation. Depreciation and
amortization are computed using the straight-line method over the estimated useful lives of the assets,
generally Ñve years or less for equipment and furniture, and up to thirty years for buildings and building
improvements.
Intangible assets
Intangible assets resulting from the acquisitions of entities accounted for using the purchase method
of accounting are estimated by management based on the fair value of assets received. IdentiÑable
intangible assets are comprised of purchased customer lists, developed technologies, trade names, and other
intangible assets. IdentiÑable intangible assets are being amortized using the straight-line method over
estimated useful lives ranging from two to seven years.
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