McKesson 2015 Annual Report Download - page 79

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may
not be practicable based on the information available and the potential effect of future events and decisions by
third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for
such matters to be resolved over many years, during which time relevant developments and new information
must be reevaluated at least quarterly to determine both the likelihood of potential loss and whether it is possible
to reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be
made, disclosure of the proceeding is provided.
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is
reasonably possible that the amount of a loss will exceed the recorded provision. We review all contingencies at
least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable
estimate of the loss or range of the loss can be made. As discussed above, development of a meaningful estimate
of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or
decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors
bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and
low estimate.
Business Combinations: We account for acquired businesses using the acquisition method of accounting,
which requires that once control is obtained of a business, 100% of the assets acquired and liabilities assumed,
including amounts attributed to noncontrolling interests, be recorded at the date of acquisition at their respective
fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded
as goodwill. Acquisition-related expenses and related restructuring costs are expensed as incurred.
Several valuation methods may be used to determine the fair value of assets acquired and liabilities
assumed. For intangible assets, we typically use the income method. This method starts with a forecast of all of
the expected future net cash flows for each asset. These cash flows are then adjusted to present value by applying
an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more
significant estimates and assumptions inherent in the income method or other methods include the amount and
timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash
flows and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including
consideration of any technical, legal, regulatory, or economic barriers to entry. Determining the useful life of an
intangible asset also requires judgment as different types of intangible assets will have different useful lives and
certain assets may even be considered to have indefinite useful lives.
Recently Adopted Accounting Pronouncements
Business Combinations: In November 2014, amended guidance related to pushdown accounting was issued
and became effective immediately. This guidance provides an acquired entity with an option to use the acquirer’s
accounting and reporting basis in the preparation of its separate financial statements when an acquirer obtains
control of the acquired entity. The option to apply pushdown accounting can be elected for each individual
change-of-control event. The adoption of this amended guidance did not have a material effect on our
consolidated financial statements.
Cumulative Translation Adjustment: In the first quarter of 2015, we adopted amended guidance for parent’s
accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or group of assets
within a foreign entity or of an investment in a foreign entity. The amended guidance requires the release of any
cumulative translation adjustment into net income only upon complete or substantially complete liquidation of a
controlling interest in a subsidiary or a group of assets within a foreign entity. Also, it requires the release of all
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