Accounting Policies and Practices of Apple - Case Study Example

Name Tutor Course Date Apple Research Report Introduction Apple Inc is an American multinational corporation that has its headquarters in Cupertino, California. The company was formed in 1976 and it is considered as the second largest information technology company in terms of revenue generation. The company usually carries out designs, manufacture and marketing of mobile communication and media devices. Apple Inc also manufactures personal computers and software that are used all over the world. The main products of the company include ipad, iphone, Mac, Apple TV, ipod, icloud, Ios and operating systems. It usually sells its products worldwide through its retail stores (Apple Inc, 2). The company is also involved in online sales and licensing of third party cellular network carriers and wholesalers. Apple Company highly values innovations and it is always keen on ensuring that its employees are innovative. The company also places a lot of emphasis on the use of technology for the purposes of attaining its goals and objectives (Yahoo finance, 6). The fiscal year of the company covers a period of 52 or 53 weeks and it ends on the first September. The customers of the company are diverse and it also includes educational institutions and government departments. The paper thus analyses the financial statement of the company for the year 2013. Accounting policies and practices Revenue recognition Revenue recognition is a principle of accounting which states that the revenue with an organization is recognized when the goods have been transferred or services have been rendered. At apple, the net revenue is usually from the sale of hardware, software, digital contents, applications, peripherals, service and support contracts (Stock analysis on net, 1). The policies of the company with regard to the revenue recognition are strict. The company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sale price has been fixed or determined and the collection is probable. According to the company, the delivery is considered when the products have been shipped and the form and risk of loss have been transferred to the customers (Apple Inc. 3). However, in the case of online sale, the company defers revenue until the customers receive the goods. This is because the company still retains some portions of the risk during the transit of the products. A general revenue recognition accounting guidance is also used by the company during the process of revenue recognition. Cash Receivables Cash receivable is determined by the accounts receivables and the notes receivables. The accounts receivables are usually highlighted in the balance sheet as an asset. It is usually a legally enforceable claim for payment to a business by the customers for goods supplied or services rendered. The notes receivables are considered as current assets if they are to be paid within a period of one year and noncurrent assets if they are to be paid for a period of over one year. They usually represent the claims of formal evidence of debt and an example is a promissory note. As of September 28 2013, the company had two major customers with trade receivables of more that 10% and it were 13% and 10% respectively. The non trade receivables were from three vendors and it comprised of 45%, 21% and 12% of the total vendor non trade receivables. The accounts receivable in 2013 was $ 2182 million (Stock analysis on net, 3). Inventories and cost of goods sold The inventories are mainly the amount of goods that a company holds for the purposes of resale. The cost of goods sold on the other hand amounts to the total costs that were incurred when selling the goods. The company has five million shares of authorized preferred stock but none of it is issued or outstanding. As of September 28 2013, the components of the inventory were $ 683 million while the finished goods were $ 1081million which translates to a total of $ 1764 million. At Apple, the inventories are stated at a lower cost and it is computed using the first in first out method (Stock analysis on net, 1). However, if the inventories exceed their market value, provisions are made for the difference between the cost and the market value. The cost of advertisement on the other hand amounted to 1.1 billion in 2013. Operational Assets The operational assets policies are mainly aimed at dealing with assets in different aspects. These include the policies regarding the acquisition, valuation, depreciation and disposal. The fair value measurement is usually applied during the valuation process. The concept is also useful during the disposal process. According to the company, fair value is defined as the price that would be received after transferring a liability or selling and asset in an orderly transaction between the market participants and measurement date. The depreciation rates of the assets of the company are usually computed through the use of the straight line method over the useful lives of the assets. According to the company, the useful live of buildings is 30 years (Stock analysis on net, 3). The depreciation rate is thus useful in terms of valuating the assets of the company during the disposal. Depletion of natural resources Depletion of natural resources is a global issue that mot only affects the company but the life on earth. The company uses some raw materials for the purposes of manufacturing some of its products. On the other hand the activities of the company have impacts on the natural resources. The company has thus developed environmental policies to ensure sustainability. The company has put in place measures to reduce the carbon footprint which is important for sustainability. The data center of the company is also powered by the sources of renewable energy. This is considering that the data center consumes a lot of energy. Environmental concerns are also considered during the product design. On the other hand, it is also important to note that the company has put in place a recycling program for the purposes of preventing the depletion of natural resources. The company has so far made achievement in terms of reducing the depletion of natural resources. Amortization of intangibles The amortization of the intangibles involves the expensing of acquisition cost minus the residual value of the intangible assets over a systematic manner. In the balance sheet, it is usually recorded as an expense in the income statement while in the financial statement it is recorded as a reduction in the carrying value. The company usually acquires licenses, patents and other intangible assets which are usually amortized for a period of three to seven years. As of September 28, 2012, the company used a total of $ 960 million for the purposes of amortization of the intangible assets (Stock analysis on net, 5). The next weight average amortization period for the intangible assets is 4.5 years. The amortization of intangible assets by the company is usually based on the useful lives. Changes in depreciation methods of operational assets Depreciation of assets is usually considered by most companies as most of the tangible assets usually depreciate over a long period of time. The fair value measurement is usually applied in the company for the purposes of determining the changes in the depreciation. On the other hand, the straight line method is usually applied in terms of the computation of the depreciation of the assets. This method usually considers the useful lives of the assets during the computations. According to the company, the useful lives of buildings are five years. The useful lives of equipment and machinery on the other hand are between two to five years. Impairment of Operational Assets The impairment of the operational materials usually occurs when the assets undergo permanent loss of benefit. Casualty or lack of demand is considered as the main cause of impairment of the operational assets. The company has policies with regards to the impairment of the operational assets. The fair value measurement is usually applied for the assets that have undergone the impairment. This is mainly for the purpose of ensuring that the assets are disposed in the correct manner. On the other hand, the company usually keeps the records of all the assets that a have undergone impairment. The record is useful in terms of establishing the real value of the operational assets of the company. Data Sheet Company Name: Apple (APPL) Date items recorded ______28 September 2013________ Closing Stock Price $ 115.19 52 Week High & Low $ 513.74-401.22 (Bloomberg market, 1) Trading Volume $ 539.80+4.07 (0.76%) (WSJ, 4) Shares Outstanding $ 892.55M. Market Capitalization $ 485.61B. Earnings Per Share Basic $ 40.03 Diluted $ 39.75 P/E Ratio 12.84 Dividend $ 10.5 Billion, $ 3.05 per share Largest Institutional Investor Equity mutual fund Fidelity Contrafund Amount of cash at year-end $ 14,259 Million Name the two financial statements where the year-end cash balance can be found Income statement Balance sheet Other than cash and cash equivalents, list the most liquid asset on the balance sheet Market securities $ 26,287 million List one long-term asset and the reported amount Marketable securities $ 106,215 million What is the amount of the company’s net assets? $207,000 million Name the company’s largest liability and the amount Retained earnings $ 104, 256 million What is the number of preferred shares outstanding? 5 billion What is the amount of retained earnings? $ 104, 256 million What is the amount of revenue? $170,910 What is income from continuing operations? $ 13,108 What is the amount of net income? $ 37,037million What is the amount of net cash provided by operating activities? $ 53,666 million What is the amount of net cash used in investing activities? $ 33,774 million What is the amount of net cash provided by financing activities? $ 16,37 million Liquidity In accounting, liquidity refers to the ability of an organization to pay for its debt when they fall due. This is considering that the liquidity of a company determines whether the company is performing well financially or not. On the other hand, the liquidity is usually expressed as a ration and it can be used to determine if a company is going bankrupt. Apple is a profitable company according to the analysis of the financial statements. The company has a long term debt of $ 16, 960 million. However, the current ratio of the company is 168% while the quick ratio is 164% and the cash ratio is 93% (Nasdaq. 2). A ratio that is above 100 percent in terms of the current ratio and the quick ratio indicate that the company has the ability of paying for its long term debts. Apple is therefore in a good position in terms of liquidity and the company will be able to pay for all its debts at the right time. On the other hand, the company has been increasingly obtaining profits which will impact positively on the liquidity of the company. It is also evident from the financial statement that the company is in sound financial condition. Debt levels The long term debt of the company amounts to $ 17 billion. This is not a high level considering that the company collected net revenue of $ 107 Billion (Stock analysis on net, 4). This is an indication that the level of the debt is low for the company. On the other hand, the company has also put in place measures to ensure that the debt is not affected by the fluctuation rates in the market. An initiative has also been put in place by the company which will ensure that the debts are payable in phases. This will impact positively on the operations of the company as it will not be affected by the debts. It is also evident from the financial statement that the company has a high capability of paying for its debt. It is thus evident that the debt levels of the company indicate that it is sound financially. Apple will therefore achieve its plans of paying the debts due to the strategies that it has put in place. References Apple Inc. About us. Retrieved on 14 January 2014 from, < www.apple.com> 2014. Apple Inc. Investor relation: Form 10-k. Retrieved on 14 January 2014 from 2014. Nasdaq. Apple Inc, key financial ratios. Retrieved on 14 January 2014 from, 2014. WSJ. AAPL Stock price today, Apple Inc stoke quote. Retrieved on January 14 2014 from, 2014. Bloomberg market. Nasdaq Gs Quote, Apple Inc. Retrieved on January 14 2014 from, 2014. Yahoo finance. App Store Sales Top $10 Billion in 2013. Retrieved on January 14 2014 from, 2014. Stock analysis on net. Apple Inc. (AAPL) Analysis of Revenues. Retrieved on January 14 2014 from, 2014 Stock analysis on net. Apple Inc. (AAPL) Analysis of Bad Debts. Retrieved on January 14 2014 from,< http://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Financial- Reporting-Quality/Bad-Debts>2014. Stock analysis on net. Apple Inc. (AAPL) Analysis of Inventory. Retrieved on January 14 2014 from, 2014. Read More