As portion of the undertaking assignment, I have got an chance to fix a undertaking study to analyze the important accounting policies of a listed entity based in United States of America ( USA ) . For accomplishing the same object, I have decided to analyze and supply my remarks on the accounting policies ( as per GAAP, US ) of MOTOROLA, INC.
Motorola, Inc – “ Our history is rich. Our hereafter is dynamic. We are Motorola and the spirit of innovation is what drives us ” .
Established itself as a planetary leader in the universe of communications, it is a Company with a Portfolio of Technologies, Solutions and Services which has been in the Industry for more than 80 old ages and has a list of excess ordinary accomplishments. Motorola, Inc besides popularly known as the ‘MOT ‘ at the NYSE has been planetary communications leader with assorted singular achievements like Enterprises, 4G Broadband, HD Videos, etc. Based in Schaumberg, Illinois – the company employs about more than 50000 people. World Leaders in Wireless Handsets more normally known as Mobile Phones, Wireless Access Systems, Voice & A ; Data Communications as per the demands with legion research & A ; developments taking to new innovations and invention tapping the creativeness of diverse civilizations and persons around the Earth.
MOT is structured in to three different Business Units/Segments
The Instance that we speak of Motorola Inc, it strikes us is the Mobile Devices specifically known for its MOTORAZR series of French telephones along with designs, industries, gross revenues and services of wireless French telephones. The latest inclusions of smart phones with incorporate package, accoutrement merchandises and licences rational belongings. Net gross revenues in 2009 were $ 7.1A billion, stand foring 32 % of the Company ‘s amalgamate net gross revenues. The twelvemonth 2009 overall saw a 6 % reduced demand in the cargos of wireless French telephones since the twelvemonth 2001, which may-be due one of the major grounds is recession. On analyzing the last one-fourth of the twelvemonth 2009, it did demo the market recovery in procedure continues in the beginning of twelvemonth 2010.
Home & A ; Networks Mobility
As the name suggests, this concern is more focussed towards the Digital Entertainment Systems for Homes, End to End Video, and Voice & A ; Data Solutions supplying latest nomadic media solutions and multi screen experiences for the Customers along with the Network Operators. Besides, covering with are the individualized Wireless & A ; Wire-line Broadband which helps the Customer to be connected through all the clip. On the whole in 2009, the section ‘s net gross revenues represented 36 % of the Company ‘s amalgamate cyberspace gross revenues which amounted to $ 8.0A billion
Enterprise Mobility Solutions & A ; Networks
The division ‘s net gross revenues in 2009 were $ 7.0A billion, stand foring 32 % of the Company ‘s amalgamate net gross revenues The concern offers a broad end-to-end scope of merchandises and solutions, including rugged bipartisan wirelesss, nomadic computing machines, unafraid public safety systems, barcode scanning, RFID readers and wireless web substructure to endeavors and authoritiess, every bit good as 4G broadband substructure, devices and services to web operators globally. MOT ‘s largest client is the U.S. Government ( assorted subdivisions and bureaus, including the armed services ) , which represented about 8 % of the section ‘s net gross revenues in 2009. The loss of this client could hold had a material inauspicious consequence on the section ‘s gross and net incomes over several quarters, because some of our contracts with the U.S. Government are long-run. Net gross revenues to clients in North America represented 58 % of the section ‘s net gross revenues in 2009.
Enterprise Mobility Solutions ( EMS ) is available to enterprise clients across retail, energy and public-service corporations, transit, fabrication, health care and other commercial markets and to authoritiess and public safety bureaus. From the first of all time two manner wireless to the first of all time double manner cellular phones to the first of all time manus held optical maser scanner Motorola EMS has systematically delivered.
Motorola offers solutions, support tools and services to several of the Fortune 500 companies and authoritiess around the universe. Motorola has an extended range into SMEG Business to a big scope of extra perpendicular markets with a combination of a planetary channel spouse community. Our communicating solutions allow people, concerns and authoritiess to be more affiliated and more Mobile.
Motorola continues to believe that a strong committedness to research and development is required to drive long-run growing. Motorola ‘s concern sections take part in really competitory industries with changeless alterations in engineering. Throughout its history, Motorola has relied, and continues to trust, chiefly on its research and development ( R & A ; D ) for the development of new merchandises and on its production technology capablenesss for the betterment of bing merchandises. A As of December31, 2009, about 22,000 professional employees were engaged in such Research & A ; Development. R & A ; D expenditures associating to new merchandise development or merchandise betterment were $ 3.2A billion in 2009, compared to $ 4.1billion in 2008 and $ 4.4 billion in 2007. R & A ; D expenditures decreased 23 % in 2009 as compared to 2008, after diminishing 7 % in 2008 as compared to 2007.
Assorted accounting criterion has been issued since long clip back on assorted issues like Standard on Revenue acknowledgment, Inventory rating, Construction contract accounting, Lease Accounting, Borrowing Cost accounting, depreciation, Investment accounting, Business combination or state consolidation accounting, goodwill rating, Segment describing etc.
A full set of fiscal statement includes Statement of Financial Position, Statement of comprehensive Income, Statement of Cash Flows and Statement of Changes in equity. Besides these statements, every entity shall hold to supply its Notes to Histories that includes assorted important accounting policies that is being followed by them for recognizing assorted dealing into the books of history.
Accounting Policies are specific principals and methods used by the coverage entity. Management selects these policies as the most appropriate one and that meets Unites States By and large Accepted Accounting policies i.e. GAAP, US. APB Opinion 22, Disclosure of accounting policies, requires concern and non for net income entities to unwrap its accounting policies as an built-in portion of the Financial statement. The regulations and processs for describing under GAAP, US are complex and have developed over a long period of clip. Presently, there are more than 150 “ dictums ” as to how to account for different types of minutess, runing from how to describe regular income from the sale of goods, and its related stock list values, to accounting for incentive stock option distributions.
Near approximately every American Business Company uses these regulations and rules based on the GAAP, US to describe their Annual Accounts. FASB ( Financial accounting Standard Board ) is the designated entity by S.E.C as an Accounting criterion puting organic structure. The criterions issued by the FASB are known as SFAS i.e. Statement of Financial Accounting Standard. These statements provide different accounting policies which are to be followed by the entity and unwrap the same as a portion of the fiscal statement. With this, Investors, Shareholders, Banks, Financial Analysts, SEC and any 3rd parties can hold a peculiarly distinguishable manner to show their Accounts & A ; Financial Information.
By utilizing consistent rules, all companies describing under GAAP study these minutess on their fiscal statements in a similar mode.
Motorola Inc. files their one-year study called 10 K every December with Securities & A ; Exchange Commission, US along with quarterly study called 8 K. These Reports are submitted as per the Generally Accepted Accounting Principles, US ( GAAP – United states ) to the Securities & A ; Exchange Commission, US. As on December 31st, 2009 – Annual Net Gross saless were $ 22.0A Billion, 27 % down every bit compared to net gross revenues of $ 30.1A billion in twelvemonth 2008. Dividing the net gross revenues into the 3 Sections at that place was a bead off of 41 % in the Mobile Devices, 21 % decline in the Home and Networks Mobility section and a sum of 13 % lessening in the Enterprise Mobility Solutions section.
The nature of industry into which Motorola, Inc participates, alterations are bound to be at that place in engineerings and different demands of the people every bit good as the markets, due to that ground the estimations and opinions with regard to assorted minutess must be based on current economic and industry status and assorted other factors that are believed to be sensible under such fortunes. The direction of Motorola Company follows the indistinguishable attack as I have discussed above and that is a good mark from the position of an investor.
On analyzing the Notes ( as per the GAAP, USA ) to the Annual Consolidated Balance – Sheet & A ; other Fiscal Statements as per the 10 K submitted on December 31st, 2009, I am herewith traveling to discourse about some of the accounting policies of Motorola, Inc. follows, like – Gross Recognition, Inventory Valuation, Income Tax, Property, Plants & A ; Equipments, Goodwill & A ; Intangible Assets, Cash Equivalents, Long Term Contracts and Revenue from Service Contract.
Merchandise and Equipment Gross saless by and large includes price reductions, monetary value protection, return commissariats and other client inducements. The Company ‘s recorded grosss are reduced by allowances for these points at the clip the gross revenues are recorded. The allowances are based on direction ‘s best estimation of the sum of allowances that the client will finally gain, based on historical experience and taking into history the type of merchandises sold based on the type of client and the type of dealing particular to each agreement. Where client inducements can non be faithfully estimated, the Company recognizes gross at the clip the merchandise sells through the distribution channel to the terminal client.
The Company ‘s long-run contracts may affect the design, technology, fabrication and installing of radio & A ; wire line webs and bipartisan wireless voice & A ; informations systems. These systems are designed to run into specific client demands & A ; specifications and in general require extended clip period to finish. If the Company can reliably estimation grosss and contract costs, the engineering is considered proven. Gross is recognized under the per centum of completion method as work progresses towards completion otherwise, the gross is recognized under the completed contract method. Estimates of contract grosss, contract costs and advancement towards completion are based on the estimations that are considered on footing of historical experience and other factors believed to be relevant as per the fortunes.
As per the prescribed policy, Revenue should be recognised as and when the hazard and wagess with regard to the same merchandise has been transferred to the purchaser and there is a sensible certainty that there will be future economic benefit originating out of the gross revenues dealing and every bit good the estimation of the sum of the dealing can be made more faithfully. Looking to the present policy of the company, it seems that company follows the same policy which has been prescribed, but the lone point to discourse is with regard to the opinions and estimations involved in mensurating the sum of allowances, price reductions and other inducements given by the company to its client. If the company estimates it – looking to the past experiences merely and does n’t look at the economic and present industry status so it may corrupt the consequence of the company to the investors, fiscal establishments, creditors etc.
The Company records rating militias on its stock list for estimated surplus or obsolescence. The sum of the modesty is equal to the difference between the cost of the stock list and the estimated market value based upon premises about future demand and market conditions. On a quarterly footing, direction in each section performs an analysis of the underlying stock list to place militias needed for surplus and obsolescence and uses its best judgement to gauge appropriate militias based on this analysis. In add-on, the Company adjusts the transporting value of stock list if the current market value of that stock list is below its cost.
Inventory should be measured at lower than of the cost or market value. If the cost of the company is greater than the recoverable sum of the stock list from the market so possibly there are opportunities that some of the stock list has been deteriorated and rating of the stock list should be reduced to that extent. Following the same the Company records rating militias on its stock list for estimated surplus or obsolescence. The sum of the modesty is equal to the difference between the cost of the stock list and the estimated market value based upon premises about future demands and market conditions. Furthermore, the company besides quarterly reviews the stock list rating and provides for the downgrade if there is any obsolescence.
The Company accounts for income revenue enhancement by acknowledging deferred revenue enhancement assets and liabilities utilizing enacted revenue enhancement rates for the consequence of the impermanent differences between the book and revenue enhancement footing of recorded assets and liabilities. The Company makes estimations and judgements with respects to the computation of certain income revenue enhancement assets and liabilities. Deferred revenue enhancement assets are reduced by rating allowances if, based on the consideration of all available Evidence, it is more likely than non to, that some part of the deferred revenue enhancement plus will non be realized. The Company evaluates deferred income revenue enhancements on a quarterly footing to find if rating allowances are required by sing available grounds, including historical & A ; projected nonexempt income and revenue enhancement planning schemes that are both prudent and executable.
The company should supply for the income -tax on the nonexempt net incomes computed as per the norms of the U.S. Taxation. In Addition to this, an entity must besides supply for the deferred revenue enhancement on impermanent nonexempt and deductible minutess. The Company accounts for income revenue enhancements by acknowledging deferred revenue enhancement assets and liabilities utilizing enacted revenue enhancement rates for the consequence of the impermanent differences between the book and revenue enhancement footing of recorded assets and liabilities. Tax rates used for the computation should be the one which has been enacted for the period in which such deferred revenue enhancement related sum is traveling to acquire reversed or else if that rate is non available so the company may utilize enacted revenue enhancement rate for the twelvemonth of coverage.
In instance of deferred revenue enhancement plus, if there is no practical certainty that there will be future gaining flow against which current operating losingss could be offset so The entity must supply for the Valuation allowance against such plus. The direction at Motorola, Inc. follows the same rule.
Long Term Contracts & A ; Revenue from Services Contract
For long-run contracts that involve customization of the Company ‘s equipment or package, the Company by and large recognizes gross utilizing the per centum of completion method based on the per centum of costs incurred to day of the month compared to the entire estimated costs to finish the contract.
In certain cases, when grosss or costs associated with long-run contracts can non be faithfully estimated or the contract involves unproved engineerings or other built-in jeopardies, grosss and costs are deferred until the undertaking is complete and client credence is obtained. When current estimations of entire contract gross and contract costs indicate a contract loss, the loss is recognized in the period it becomes apparent.
In instance of the assorted contracts, US GAAP prescribes either completed contract method or Percentage of completion method.
Most feasible method is per centum of completion method because it gives proper way towards the extent to which any particular contract has been finished and what gross, outgo and profit/loss has been booked. The direction here at Motorola, Inc follows per centum of completion method in bulk of its contract which indicates good mark. But in few of the instances if the entity is non certain about the gross and cost of a peculiar contract so it accounts for such dealing with aid of completed contract method.
Cash Equivalent & A ; Revenue from Services Contract:
The Company considers all extremely liquid investings purchased with an original adulthood of three months or less to be hard currency equivalents.
Gross for services is by and large recognized rateably over the contract term as services are performed.
With regard to the hard currency equivalent and gross from the service contract, the company more or less follow the same constabularies as prescribed by the criterion.
Property Plant and Equipments:
Property, works and equipment are stated at cost less accrued depreciation. Depreciation is recorded utilizing straight-line and declining-balance methods, based on the estimated utile life of the assets ( edifices and edifice equipment, 5-40 old ages ; machinery and equipment, 2-10 old ages ) and commences one time the assets are ready for their intended usage.
Plant Property and Equipments are recorded at historical cost less accrued depreciation as per GAAP, US. Although the company follows the same accounting policies but as per the international criterion it is besides recommended that if it is possible so the company should follow just value theoretical account whereby the entity should mensurate its plus at just value less depreciation at describing period terminal. Furthermore, merely those assets that are used for operational intents are covered within this criterion. The direction must specify what the capital outgo is and what the gross outgos are. Besides that, besides the criterion on borrowing cost must besides be followed decently.
Goodwill and Intangible Asset:
Goodwill is non amortized, but alternatively is tested for damage at least yearly. The good will impairment trial is performed at the describing unit degree and is a two-step analysis. First, the just value of each coverage unit is compared to its book value. If the just value of the coverage unit is less than its book value, the Company performs a conjectural purchase monetary value allotment based on the coverage unit ‘s just value to find the just value of the coverage unit ‘s good will. Fair value is determined utilizing a combination of present value techniques and market monetary values of comparable concerns. Intangible assets are by and large amortized on a consecutive line footing over their several estimated utile lives runing from one to 14 old ages. The Company has no intangible assets with indefinite utile lives.
Impact of Accounting Policies adopted on Ratio Analysis:
Get downing with the disadvantage of ratio analysis, I would wish to notice that if the accounting policies of two companies are into the same industry so possibly we will non be able to notice on the consequences of both the entity.
In instance of profitableness ratio, if the direction follows speed uping gross acknowledgment policy so the company will book high gross net income border than the 1 it would hold been if non recorded on that footing. Furthermore if there is any misclassification of outgo between operating, R & A ; D, Administration and Finance cost so besides there will be miscomputation of net Net income and in return net net income ratio will non supply exact image.
Turnover ratios like Inventory turnover, Receivables Turnover, Payables Turnover, etc. provides information sing how expeditiously the company is pull offing its assets. If the company values its stock list as per normal proviso, without sing the disused stock so there will be more value in the denominator which will ensue in lower stock list turnover ratio.
The direction must order its definition of the term Capital Employed because some entity use full capital employed ( equity every bit good as debts ) as capital Employed and while some of the entity excludes short term debt from the computation.
In instance of Asset Turnover ratio if the entity has non capitalised the disbursals decently so it may be possible that the capitalised value of the plus is under or overvalued and the same will ensue in lessening or increase in the ration of Entire Asset turnover.
If the Motorola Inc. direction program to publish any exchangeable security so the direction will hold to cipher the consequence of the exchangeable security on gaining per portion that we normally term as Diluted Earnings Per Share.
Therefore, looking to the above observations and comments on the accounting policies and impact of the same on ratio analysis, it seems that what a critical function these accounting policies play in a fiscal coverage of any entity. So it is required on the portion of the direction to take the accounting policies with extreme attention and looking to the nature of the dealing and economic and industry demand.