About the iPhone
What is one key success factor and risk relating to the iPhone?
Various answers
Name 1 similarity between Regulation G and NI 52-112.
(anything reasonable)
What is the name of the method of accounting that US GAAP uses to account for the iPhone?
Subscription method of accounting.
What are the 2 criteria that must be met for a good/service to be considered distinct?
1) The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer
2) The good or service is separately identifiable from other goods or services in the contract
What is the basis of accounting Apple's non-GAAP measures are essentially using?
What are some standard features in a typical mobile carrier agreement?
Carrier subsidizes phone manufacturer so consumers pay a lower price. In return, consumers stay locked into one carrier for a set period of time.
How does NI 52-112 deal with oral disclosures?
NI is silent on this
How is the revenue earned from iPhone sales recognized using US GAAP?
Did we conclude that the sale of the initial iPhone and its post-contract support were one or separate performance obligations?
Separate
What is the advantage of non-GAAP measures we mentioned in our presentation?
Least subject to management manipulation.
What was the major difference between Apple's original carrier agreements for its first iPhone compared to carrier agreements with other phone manufacturers?
Apple opted to for a revenue sharing plan as opposed to the carrier directly subsidizing the price of the phone. This way Apple collected monthly subscription revenues as opposed to having a direct payment from the carrier at the time of purchase.
Name one of the requirements under NI 52-112
reconciliation, prominence, labeling comparative period, explanation etc.
Why are sales from Macs not recognized the same way as iPhones?
Macs are recognized at the point of sale. Macs were sold with a wireless chip to upgrade software when it was available. It was originally free (sold together) but since it was an unspecified, future upgrade that had a separate, identifiable value, it had to be accounted for separately so Apple had to either 1) restate Mac revenues using subscription method or 2) charge for the upgrade [Apple chose to charge].
What are the 3 suitable methods for estimating the stand-alone price of an asset, and which one do we think is most suitable for the Apple iPhone?
1. Adjusted market assessment approach
2. Expected cost plus a margin approach
3. Residual approach.
We think the expected cost plus a margin approach is most suitable.
Both are important but users of the financial statements tend to more heavily weigh non-GAAP measures over GAAP.