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52 2014 Form 10-K | H&R Block, Inc.
Impairment testing compares the carrying amount of the reporting unit, including goodwill, with its fair value. Fair
value is estimated based on discounted cash flows and comparable market information. If the carrying amount of the
reporting unit exceeds its fair value, an impairment charge may be indicated.
Intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment
whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The
weighted-average life of intangible assets with finite lives is 24 years. Intangible assets are typically amortized over
the estimated useful life of the assets using the straight-line method. An impairment loss would be indicated when
estimated undiscounted future cash flows from the use of the asset are less than its carrying amount. An impairment
loss would be measured as the difference between the fair value (based on discounted future cash flows) and the
carrying amount of the asset.
We capitalize certain allowable costs associated with software developed for internal use. These costs are typically
amortized over three to five years using the straight-line method.
TREASURY SHARES – We record shares of common stock repurchased by us as treasury shares, at cost, resulting
in a reduction of stockholders' equity. Periodically, we may retire shares held in treasury as determined by our Board
of Directors. We reissue treasury shares as part of our stock-based compensation programs or for acquisitions. When
shares are reissued, we determine the cost using the average cost method.
REVENUE RECOGNITION – Service revenues consist primarily of fees for preparation and filing of tax returns, both
in offices and through our online programs, fees associated with our Peace of Mind® (POM) guarantee program and
interchange income associated with our H&R Block Prepaid Emerald MasterCard® program. Service revenues are
recognized in the period in which the service is performed as follows:
Assisted and online tax preparation revenues are recorded when a completed return is electronically filed or
accepted by the customer.
POM revenues are deferred and recognized over the term of the guarantee, based on actual claims paid in relation
to projected claims.
Revenues associated with our H&R Block Prepaid Emerald MasterCard® program consist of interchange income
from the use of debit cards and fees from the use of ATM networks. Interchange income is a fee paid by a merchant
bank to the card-issuing bank through the interchange network, and is recognized based on cardholder
transactions.
Royalty, product and other revenues include royalties from franchisees and sales of software products, and are
recognized as follows:
Upon granting of a franchise, franchisees pay a refundable deposit generally in the amount of $2,500, but pay
no initial franchise fee. We record the payment as a deposit liability and recognize no revenue in connection with
the initial granting of a franchise. Franchise royalties, which are based on contractual percentages of franchise
revenues, are recorded in the period in which the franchise provides the service.
Revenue from the sale of software is recognized when the product is sold to the end user. Rebates, slotting fees
and other incentives paid in connection with these sales are recorded as a reduction of revenue.
Interest income consists primarily of interest earned on EAs and mortgage loans held for investment and is
recognized as follows:
Interest income on EAs and loans to franchisees is calculated using the average daily balance method and is
recognized based on the principal amount outstanding until the outstanding balance is paid or becomes
delinquent.
Interest income on mortgage loans held for investment includes deferred origination fees and costs and purchase
discounts and premiums, which are amortized to income over the life of the loan using the interest method.
Loan commitment fees, net of related expenses, are initially deferred and recognized as revenue over the
commitment period.