ADP 2011 Annual Report Download - page 41

If the fair value of an available
- for - sale debt security is below its amortized cost, the Company assesses whether it intends to sell the
security or if it is more likely than not the Company will be required to sell the security before recovery. If either of those two
conditions were met, the Company would recognize a charge in earnings equal to the entire difference between the security ’ s
amortized cost basis and its fair value. If the Company does not intend to sell a security or it is not more likely than not that it will be
required to sell the security before recovery, the unrealized loss is separated into an amount representing the credit loss, which is
recognized in earnings, and the amount related to all other factors, which is recognized in accumulated other comprehensive income.
Premiums and discounts are amortized or accreted over the life of the related available
- for - sale security as an adjustment to yield
using the effective
- interest method. Dividend and interest income are recognized when earned.
F. Long - term Receivables. Long - term receivables relate to notes receivable from the sale of computer systems, primarily to auto,
truck, motorcycle, marine, recreational vehicle and heavy equipment dealers. Unearned income from finance receivables represents
the excess of gross receivables over the sales price of the computer systems financed. Unearned income is amortized using the
effective
- interest method to maintain a constant rate of return over the term of each contract.
The allowance for doubtful accounts on long
- term receivables is the Company ’ s best estimate of the amount of probable credit
losses related to the Company
’ s existing note receivables.
G. Property, Plant and Equipment. Property, plant and equipment is stated at cost and depreciated over the estimated useful lives of
the assets using the straight
- line method. Leasehold improvements are amortized over the shorter of the term of the lease or the
estimated useful lives of the improvements. The estimated useful lives of assets are primarily as follows:
H. Goodwill and Other Intangible Assets. Goodwill and intangible assets with indefinite useful lives are not amortized, but are
instead tested for impairment at least annually at the reporting unit level. The Company performs this impairment test by first
comparing the fair value of our reporting units to their carrying amount. If an indicator of impairment exists based upon comparing
the fair value of our reporting units to their carrying amount, the Company would then compare the implied fair value of our goodwill
to the carrying amount in order to determine the amount of the impairment, if any. The Company determines the estimated fair value
of its reporting units using an equal weighted blended approach which combines the income approach, which is the present value of
expected cash flows, discounted at a risk
- adjusted weighted - average cost of capital; and the market approach, which is based on
using market multiples of companies in similar lines of business.
I. Impairment of Long - Lived Assets. Long - lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If
the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
J. Foreign Currency Translation. The net assets of the Company
’ s foreign subsidiaries are translated into U.S. dollars based on
exchange rates in effect for each period, and revenues and expenses are translated at average exchange rates in the periods. Gains or
losses from balance sheet translation are included in accumulated other comprehensive income on the Consolidated Balance Sheets.
Currency transaction gains or losses, which are included in the results of operations, are immaterial for all periods presented.
K. Derivative Financial Instruments. Derivative financial instruments are measured at fair value and are recognized as assets or
liabilities on the Consolidated Balance Sheets with changes in the fair value of the derivatives recognized in either net earnings from
continuing operations or accumulated other comprehensive income, depending on the timing and designated purpose of the
derivative.
There were no derivative financial instruments outstanding at June 30, 2011 or June 30, 2010.
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Data processing equipment
2 to 5 years
Buildings
20 to 40 years
Furniture and fixtures
3 to 7 years