The paper provides a brief analysis of accounting policies of Google Inc. Google Inc. is an American multinational technology company that specializes in Internet-related services and products. The company is listed on New York Stock Exchange and headquartered in California.
Goggle Inc. records its property, plant and equipment at cost less accumulated depreciation, or amortization in the case of intangible assets. The company uses the straight-line method of depreciation to charge depreciation over the useful life of an asset. The depreciation policies of the company are consistent and are in line with the industry practices. For instance, the buildings of the company are depreciated over the useful life of 25 years while the leasehold developments are depreciated over estimated useful life of an asset or remaining lease term, whichever is shorter. The company’s non-current assets also contain an item of construction in progress that is related to the construction or development of property and plants that have not yet been taken into intended use by the company. It is also the policy of the company to commence depreciation of an asset from the time when the building or another leasehold asset is taken into intended use (Annual Report 2015: Google Inc.).
The primary sources of the company’s liquidity are cash and cash equivalents, marketable securities, and the cash flows generated from operations. The company also obtains liquidity from an unused letter of credits. The company invests its excess liquid assets in money markets; time deposits, high liquid debt instruments of US Government, debt instruments of foreign government, corporate securities, and mortgage-backed securities and asset-backed securities. It is the policy of the company to classify highly liquid investments of three or fewer months as cash equivalents and highly liquid investments of greater than three months as marketable securities. The company at their fair value reports marketable securities and cash equivalents. The unrealized gains or losses, net of taxes, are classified as a component of stockholder’s equity.
It is important to note that the Google's policy about its investments is highly precautious. The company determines the risk and rewards objective of every purchased security and sells those securities that are considered as risky.
The company’s policy with regard to estimate and provisions is straightforward. The company records its account receivables at an invoice amount and does not charge interest on debts. The company also maintains the allowance for uncollectible to create a reserve for uncollectible debts. The amount of uncollectible debts is recognized through analysis of potentially significant disputes and collectability issues. Judgments with regard to creditworthiness and goodwill of customers are also made which are usually based on credit evaluations. The amount of allowance is realized on historical credits given to the debtors.
Primarily performance advertising and brand advertising generate the revenue of the company. The company recognizes revenues when the services are delivered, and the income is determinable. The company's policy with its services providing is highly strict, and clients are required to agree upon the terms and nature of transactions before the services are provided. Collectability of customers is also assessed for reasonability before providing the services.
Google Inc. recently adopted few changes in accounting policies which are expected to have a significant impact on earnings of the company. In April 2014, the financial accounting standards board (FASB) issued an update to accounting standard “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The update raised the threshold for disposal to qualify as a discontinued operation. Another update was also issued for "Revenue from Contracts with Customers" which required the entities to recognize the revenue for an amount that reflects the consideration to which the company is entitled to in exchange for goods and services (Flood). The company adopted the first update and is currently in the process of evaluating the impact of the second update on its financial reporting.
The company made prior period classifications in 2014. These reclassifications of amount were related to discontinued operations that occurred as a result of the expected Motorola mobile Inc. disposition. The reclassifications were also made to the share and per share amount, which resulted due to the stock split, to bring them into conformity with current period presentation.
Another red flag was assessed in the cost of revenues of the company that increased by $4,817 million as compared to the previous year. This increase was the result of the increase in traffic acquisition cost of $1,302 million and the increased fees paid by the company to direct additional traffic to Google websites. The remaining increase represented the enhancement in the cost of data cost center and hardware inventory cost. The company management is of the view that cost of revenue is expected to increase further in next year due to positive growth in rates of revenues from websites and Google networks member’s sites.
Works Cited
Annual Report 2015: Google Inc. California: Google Inc., 2015. Print.
Flood, Joanne M. Wiley GAAP 2015: Interpretation and Application of Generally Accepted Accounting Principles 2015. Hoboken: John Wiley & Sons, 2014. Print.
