eBay 2005 Annual Report Download - page 90

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eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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, one to three years for computer equipment and software, up to 30 years for buildings and building
improvements, ten years for aviation equipment, the shorter of five years or the term of the lease for leasehold
improvements, three years for furniture and fixtures and three years for vehicles.
Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and
identifiable intangible assets acquired in a business combination. 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. Identifiable intangible assets are comprised of purchased customer
lists and user base, trademarks and trade names, developed technologies, and other intangible assets.
Identifiable intangible assets are being amortized over the period of estimated benefit using the straight-line
method and estimated useful lives ranging from one to eight years. Goodwill is not subject to amortization, but
is subject to at least an annual assessment for impairment, applying a fair-value based test.
Impairment of Long-lived assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its
carrying amount exceeds the future net cash flow the asset is expected to generate. If an asset is considered to
be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the
asset exceeds its fair market value. We assess the recoverability of our long-lived and intangible assets by
determining whether the unamortized balances can be recovered through undiscounted future net cash flows
of the related assets. The amount of impairment, if any, is measured based on projected discounted future net
cash flows.
We evaluate goodwill, at a minimum, on an annual basis and whenever events and changes in
circumstances suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested at
the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the fair value
of the reporting unit. The fair values of the reporting units are estimated using a combination of the income, or
discounted cash flows, approach and the market approach, which utilizes comparable companies' data. If the
carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step
is performed to measure the amount of impairment loss, if any. We conducted our annual impairment test as
of August 31, 2005 and determined there was no impairment. There were no events or circumstances from
that date through December 31, 2005 that would impact this assessment.
Revenue recognition
Our net revenues result from fees associated with our transaction, advertising and other non-transaction
services in our U.S. Marketplaces, International Marketplaces, Payments and Communications segments.
Transaction revenue is derived primarily from listing, feature and final value fees paid by sellers and fees from
payment processing services. Revenue from advertising is derived principally from the sale of online banner
and sponsorship advertisements for cash and through barter arrangements. Other non-transaction net revenue
is primarily composed of our end-to-end services net revenue that is derived principally from contractual
arrangements with third parties that provide transaction services to eBay users. Revenue is recognized when
evidence of an arrangement exists, the fee is fixed and determinable, no significant obligation remains and
collection of the receivable is reasonably assured.
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