Green Dot 2011 Annual Report Download - page 69

GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 2—Summary of Significant Accounting Policies (continued)
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We consider a loan to be impaired when it is probable that we will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Once we determine a loan to be impaired, we measure the impairment
based on the present value of the expected future cash flows discounted at the loan's effective interest rate. We may
also measure impairment based on observable market prices, or for loans that are solely dependent on the collateral
for repayment, the estimated fair value of the collateral less estimated costs to sell. If the recorded investment in
impaired loans exceeds this amount, we establish a specific allowance as a component of the allowance for loan
losses or by adjusting an existing valuation allowance for the impaired loan.
We establish an allowance for loan losses to account for estimated credit impairment in the loan portfolio. However,
as our loan portfolio was acquired on December 8, 2011 at fair value, there was no perceived credit impairment as of
December 31, 2011 and therefore no allowance has been established.
Property and Equipment
We carry our property and equipment at cost less accumulated depreciation and amortization. We generally
compute depreciation on property and equipment using the straight-line method over the estimated useful lives of the
assets, except for internal-use software in development and land, which are not depreciated. We generally compute
amortization on tenant improvements using the straight-line method over the shorter of the related lease term or
estimated useful lives of the improvements. We expense expenditures for maintenance and repairs as incurred.
The estimated useful lives of the respective classes of assets are as follows:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 years
Computer equipment, furniture and office equipment . . . . . . . . . . . . . . 3-4 years
Computer software purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 years
Capitalized internal-use software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 years
Tenant improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shorter of the useful life or the lease term
We capitalize certain internal and external costs incurred to develop internal-use software during the application
development stage. We also capitalize the cost of specified upgrades and enhancements to internal-use software that
result in additional functionality. Once a development project is substantially complete and the software is ready for
its intended use, we begin depreciating these costs on a straight-line basis over the internal-use software’s estimated
useful life.
Impairment of Long Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of expected undiscounted future cash flows from an
asset is less than the carrying amount of the asset, we recognize an impairment loss. We measure the loss as the
amount by which the carrying amount exceeds its fair value calculated using the present value of estimated net future
cash flows. Included in other general and administrative expenses in our consolidated statements of operations for
the years ended December 31, 2011 and 2010, the five months ended December 31, 2009 and the year ended July
31, 2009 were $397,000, $409,000, $77,000 and $405,000, respectively, of recognized impairment losses on internal-
use software.
Goodwill
We test goodwill annually for impairment or more frequently upon the occurrence of certain events or substantive
changes in circumstances that indicate goodwill is more likely than not impaired. The testing of goodwill for impairment
is required to be performed at the level referred to as the reporting unit. A reporting unit is either the “operating segment
level” or one level below, which is referred to as a “component.”
Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated
fair value of a reporting unit to its carrying amount, including goodwill. In performing the first step, we determine the
fair value of its reporting unit using a market-based approach based on the our market capitalization. If the estimated
fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second
step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value,
then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment