US Postal Service 2014 Annual Report Download - page 52

2014 Report on Form 10-K United States Postal Service 48
Receivables, net of allowances
Receivables are recorded at the amount invoiced, net of allowances. Allowances for potential credit losses are recognized at
each balance sheet date. These estimates are determined based on historical collection experience, trends in customer payment
frequency and judgments about the probable effects on observable data, including present economic conditions and the financial
health of specific customers and market sectors.
Property and Equipment
Property and equipment is recorded at cost, which includes the interest on borrowings used to pay for the construction of major
capital additions, less accumulated depreciation. Depreciation expense is recorded using the straight-line method over the
estimated useful lives, which range from 3 - 40 years. Depreciation expense is included in “Other operating expenses” in the
Statements of Operations. The costs and accumulated depreciation of assets sold or retired are removed from balance sheet
accounts in the period in which the transaction occurred. General maintenance and repair costs are charged to expense as
incurred.
Impaired Assets
Impairment losses on long-lived assets are recorded when events or circumstances indicate that the assets’ fair value is less than
the carrying value. When such a determination is made, the carrying values of the assets are written down to fair value. Fair
value is determined by independent appraisals for real property. Due to the absence of a market for most types of mailing
equipment, impaired equipment assets are typically assigned a fair value of zero. Impairment charges included in “Other
operating expenses” in the Statements of Operations were $62 million, $26 million and $80 million for the years ended
September 30, 2014, 2013 and 2012, respectively.
Deferred Revenue–Prepaid Postage
Deferred revenue–prepaid postage is an estimate of postage that has been sold, but not yet used by customers. Revenue is
recognized when mail is delivered. Because payments for postage are collected in advance of services being performed, revenue
is deferred and reflected in the Balance Sheets as “Deferred revenue–prepaid postage.” Two categories of postage sales account
for the majority of deferred revenue–prepaid postage: stamp sales and metered postage.
Deferred revenue for stamp sales is developed and validated through complex mathematical and statistical sampling methods
for estimating usage, including regression analysis of stamp usage trends. Small differences in inputs can lead to significant
differences in the estimate of the liability. The estimated stamp usage is subtracted from stamp sales with the difference
representing the Postal Service’s obligation to perform future services. That obligation is reduced by recognizing a provision for
stamps sold that may never be used; either through loss, damage or collecting activity.
Metered postage is primarily used by businesses. Deferred revenue related to meters is estimated by monitoring the actual usage
of all postage meters that had postage added during the month preceding the financial measurement date. The information from
the two most recent meter readings is used to derive a deferral percentage, which is applied to all postage meter receipts for the
month.
Included in the estimate of deferred revenue–prepaid postage is an estimate for mail that is in-transit within the postal system.
The following table summarizes deferred revenue–prepaid postage by category as of September 30, 2014 and 2013:
(in millions)
2014
2013
Forever stamps
$
2,272
$
2,179
Non-forever stamps
72
96
Meters
392
403
Mail in-transit
279
265
Other
49
50
Total deferred revenue-prepaid postage
$
3,064
$
2,993