Business Development Essay

337 Words2 Pages
Apple, Inc. Case Homework Assignment 1) Which method best reflects economic reality? It seems that in Apple’s case economic reality is better defined in non-GAAP terms. The useful life of a cell phone is 2 years and the cost of the phone is subsidized through service providers (i.e. AT&T, Verizon & Sprint), but the revenues for the phone are realized all at once to Apple. As part of Apples iOS system, users are able to take advantage of “free” upgrades (much like a subscription), from time to time, and there is a cost associated with those upgrades which will need to be allocated to the revenues Apple collects from the upfront charge for the phone. Therefore, spreading realized revenues over two years, in this case, will help to smooth out the expense in software upgrades over the 2 year term. The choices are imperfect either way; however, since Apple receives all of the money upfront and incurs expenses over time, the best way to match the expense with the revenues seems better reflected in non-GAAP terms. 2) Should Apple lobby for the non-GAAP numbers to be sanctioned by FASB? It doesn’t seem that lobbying for non-GAAP measure will be of help to Apple. Either way, Apple’s investors seem to look at both GAAP or non-GAAP measures in tandem and decide what investment strategy they should take. As mentioned in the case, when investors are presented with both, they tend to make decisions based on the more positive of the two. 3) Does it matter if the revenue recognition rule for the smartphone changes? Yes it does matter if the revenue recognition rule for the smartphone changes. The current rule for revenue recognition puts US technology companies on equal footing with their international counterparts. Since international competitors, under IFRS, are only required to report a fraction of their revenues when selling bundled

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