As part of the project assignment, I have got an opportunity to prepare a project report to analyse the significant accounting policies

of a listed entity based in United States of America (USA). For achieving the same object, I have decided to study and provide my comments on the accounting policies (as per GAAP, US) of MOTOROLA, INC.

Motorola, Inc Our history is rich. Our future is dynamic. We are Motorola and the spirit of invention is what drives us.
Established itself as a global leader in the world of communications, it is the Company with Portfolio of Technologies, Solutions and Services which have been in the Industry for more than 80 years along with a list of extra ordinary achievements. Motorola, Inc. is also popularly known as the MOT at the NYSE. The Company has always been global communications leader with various remarkable accomplishments like Enterprises, 4G Broadband, HD Videos, etc. Based in Schaumberg, Illinois the company employs about more than 50,000 people. World Leaders in Wireless Handsets more commonly known as Mobile Phones, Wireless Access Systems, Voice & Data Communications as per the requirements with numerous research & developments leading to new inventions and innovation tapping the creativity of diverse cultures and individuals around the globe. MOT is structured in to three different Business Units/Segments: 1. Mobile Devices The Instance that we speak of Motorola Inc, first thing that strikes any common person is the Mobile Devices, specifically known for its

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MOTORAZR series of handsets along with vast designs, manufactures and sales & services of wireless handsets. The most recent inclusion of smart phones with integrated softwares, accessory products and licenses intellectual property. 2. Home & Networks Mobility As the name suggests, this business is more focused towards the Digital Entertainment Systems for Homes, End to End Video, and Voice & Data Solutions providing latest mobile media solutions and multi screen experiences for the Customers along with the Network Operators. Also, dealing with are the personalized Wireless & Wire-line Broadband which helps the Customer to be connected through all the time. 3. Enterprise Mobility Solutions & Networks The business offers a wide end-to-end range of products and solutions, which includes rugged two-way radios, mobile computers; secure public safety systems, barcode scanning, RFID readers and wireless network infrastructure to enterprises and governments, as well as 4G broadband infrastructures, devices and services to network operators globally. MOTs one of the largest customer is the U.S. Government (various branches and agencies, including the armed services), which represented approximately 8% of the segment's net sales in 2009. The loss of this customer might have a material adverse effect

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on the segment's revenue and earnings over several quarters, because some of the contracts with the U.S. Government are long-term.

Enterprise Mobility Solutions (EMS) is available to enterprise customers across retail, energy and utilities, transportation, manufacturing, healthcare and other commercial markets and to governments & public safety agencies. From the first ever two way radios to the first ever dual mode cellular phones to the first ever hand held laser scanner Motorola EMS has always delivered. All the Three Divisions share approximately 1/3rd of the Total Turnover of the Company. Motorola, Inc offers solutions, support tools and services to several of the Fortune 500 companies and governments around the world. Motorola has an extensive reach into SMEG Business to a large range of additional vertical markets with a combination of a global channel partner community. The Companys communication solution allows people, businesses and governments to be more connected and more mobile.

Motorola continues to believe that a strong commitment to research and development is required to drive long-term growth. Motorola's business segments participate in very competitive industries with constant changes in technology. Throughout its history, Motorola has been relying, primarily on its research and development (R&D) for the development of new products and on its production engineering capabilities for the improvement of existing products.

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As of December 31, 2009, approximately 22,000 professional employees were engaged in such Research & Development. R & D expenditures relating to new product development or product improvement were $ 3.2 billion in 2009, compared to $ 4.1 billion in 2008 and $4.4 billion in 2007. R&D expenditures decreased 23% in 2009 as compared to 2008.

Various accounting standards have been issued a long time back on various topics like Standard on Revenue recognition, Inventory Valuation, Construction Contract Accounting, Lease Accounting, Borrowing Cost accounting, Depreciation, Investment Accounting, Business Combination or say Consolidation Accounting, Goodwill Valuation, Segment Reporting, etc. A full set of financial 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 have to provide its Notes to Accounts that includes various significant accounting policies that is being followed by them for recognising various transaction into the books of account.

Accounting Policies are specific principles and methods used by the reporting entity. Management selects these policies as per the most appropriate one and that meets United States Generally Accepted Accounting Policies i.e. GAAP, US. APB Opinion 22, Disclosure of accounting policies, requires business and not for profit entities to disclose its accounting policies as an integral part of the Financial statement. The rules and procedures for reporting under GAAP, US are complex and have developed over a long period of time. Currently, there are more than 150 "pronouncements" as to how to account for different types of

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transactions, ranging from how to report regular income from the sale of goods, and its related inventory values, to accounting for incentive stock option distributions. Nearly about every American Business Company uses these rules and principles based on the GAAP, US to report their Annual Accounts. FASB (Financial accounting Standard Board) is the designated entity by Securities & Exchange Commission as an Accounting standard setting body. The standards 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 disclose the same as a part of the Financial Statement. With this, Investors, Shareholders, Banks, Financial Analysts, SEC and any third parties can have a understanding of these with a particularly distinct way presented in their Accounts & Financial Information. Motorola Inc. files their annual report called 10 K every December with Securities & Exchange Commission, US along with quarterly report called 8 K. These Reports are submitted as per the Generally Accepted Accounting Principles, US (GAAP, US) to the Securities & Exchange Commission, US. As on December 31st, 2009 Annual Net Sales were $ 22.0 Billion, 27% down as compared to net sales of $ 30.1 billion in year 2008. Dividing the net sales into the 3 Segments there was a drop off of 41% in the Mobile Devices, 21% diminution in the Home and Networks Mobility segment and a total of 13% decrease in the Enterprise Mobility Solutions segment. The nature of industry into which Motorola, Inc participates, changes are bound to be there in technologies and diverse needs of the people as well as the markets, due to that reason the estimates and judgements with respect to various transactions must be based on

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current economic and industry condition and various other factors that are believed to be reasonable under such circumstances. The management of Motorola Company follows the identical approach as discussed above and that is a good sign from the perspective of an investor. On comprehensive studying of the Notes (as per the GAAP, US) to the Annual Consolidated Balance-Sheet & other Financial Statements as per the 10 K submitted on December 31st, 2009, I am hereby going to discuss about some of the accounting policies of Motorola, Inc. follows, like Revenue Recognition, Inventory Valuation, Income Tax, Property, Plants & Equipments, Goodwill & Intangible Assets, Cash Equivalents, Long Term Contracts and Revenue from Service Contract.

Revenue Recognition:
Product and Equipment Sales generally includes discounts, price protection, return provisions and other customer incentives. The Companys recorded revenues are reduced by allowances for these items at the time the sales are recorded. The allowances are based on managements best estimate of the amount of allowances that the customer will ultimately earn, based on historical experience and taking into account the type of products sold based on the type of customer and the type of transaction specific to each arrangement. Where customer incentives cannot be reliably estimated, the Company recognizes revenue at the time the product sells through the distribution channel to the end customer. The Companys long-term contracts may involve the design, engineering, manufacturing and installation of wireless & wire line networks and two-way radio voice & data systems. These systems are designed to meet specific customer requirements &

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specifications and in general require extended time period to complete. If the Company can reliably estimate revenues and contract costs, the technology is considered proven. Revenue is recognized under the percentage of completion method as work progresses towards completion otherwise, the revenue is recognized under the completed contract method. Estimates of contract revenues, contract costs and progress towards completion are based on the estimates that are considered on basis of historical experience and other factors believed to be relevant as per the circumstances. As per the prescribed policy, Revenue should be recognised as and when the risk and rewards with respect to the same product has been transferred to the buyer and there is a reasonable certainty that there will be future economic benefit arising out of the sales transaction and as well the estimate of the amount of the transaction can be made more reliably. Looking to the present policy of the company, it seems that company follows the same policy which has been prescribed, but the only point to discuss is with respect to the judgements and estimates involved in measuring the amount of allowances, discounts and other incentives given by the company to its customer. If the company estimates it - looking to the past experiences only and doesnt look at the economic and present industry condition then it may misdirect the result of the company to the investors, financial institutions, creditors etc.

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Inventory Valuation:
The Company records valuation reserves on its inventory for estimated excess or obsolescence. The amount of the reserve is equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. On a quarterly basis, management in each segment performs an analysis of the underlying inventory to identify reserves needed for excess and obsolescence and uses its best judgment to estimate appropriate reserves based on this analysis. In addition, the Company adjusts the carrying value of inventory if the current market value of that inventory is below its cost. Inventory should be measured at lower than the cost or market value. If the cost of the company is greater than the recoverable amount of the inventory from the market then perhaps there are chances that some of the inventory has been deteriorated and valuation of the inventory should be reduced to that extent. Following the same the Company records valuation reserves on its inventory for estimated excess or obsolescence. The amount of the reserve is equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demands and market conditions. Moreover, the company also quarterly reviews the inventory valuation and provides for the downgrade if there is any obsolescence.

Income-tax:

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The Company accounts for income tax by recognizing deferred tax assets and liabilities using enacted tax rates for the effect of the temporary differences between the book and tax basis of recorded assets and liabilities. The Company makes estimates and judgments with regards to the calculation of certain income tax assets and liabilities. Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available Evidence, it is more likely than not to, that some portion of the deferred tax asset will not be realized. The Company evaluates deferred income taxes on a quarterly basis to determine if valuation allowances are required by considering available evidence, including historical & projected taxable income and tax planning strategies that are both prudent and feasible.

The company should provide for the income tax on the taxable profits computed as per the norms of the U.S. Taxation. In Addition to this, an entity must also provide for the deferred tax on temporary taxable and deductible transactions. The Company accounts for income taxes by recognizing deferred tax assets and liabilities using enacted tax rates for the effect of the temporary differences between the book and tax basis of recorded assets and liabilities. Tax rates used for the calculation should be the one which has been enacted for the period in which such deferred tax related amount is going to get reversed or else if that rate is not available then the company may use enacted tax rate for the year of reporting. In case of deferred tax asset, if there is no virtual certainty that there will be future earning flow against which current operating losses could be offset then the entity must provide for the Valuation allowance against such asset. The management at Motorola, Inc. follows the same principle.

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Long Term Contracts:

For long-term contracts that involve customization of the Companys equipment or software, the Company generally recognizes revenue using the percentage of completion method based on the percentage of costs incurred to date compared to the total estimated costs to complete the contract. In certain instances, when revenues or costs associated with long-term contracts cannot be reliably estimated or the contract involves unproven technologies or other inherent hazards, revenues and costs are deferred until the project is complete and customer acceptance is obtained. When current estimates of total contract revenue and contract costs indicate a contract loss, the loss is recognized in the period it becomes evident.

In case of the various contracts, the GAAP, US prescribes either completed contract method or Percentage of completion method. Most viable method is percentage of completion method because it gives proper direction towards the extent to which any specific contract has been finished and what revenue, expenditure and profit/loss has been booked. The management here at Motorola, Inc follows percentage of completion method in majority of its contract which indicates good sign. But in few of the cases if the entity is not sure about the revenue and cost of a particular contract then it accounts for such transaction with help of completed contract method.

Cash Equivalent & Revenue from Services Contract:

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The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Revenue for services is generally recognized rateably over the contract term as services are performed. With respect to the cash equivalent and revenue from the service contract, the company more or less follow the same polices as prescribed by the standard.

Property Plant and Equipments:

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using straight-line and declining-balance methods, based on the estimated useful life of the assets (buildings and building equipment, 5-40 years; machinery and equipment, 2-10 years) and commences once the assets are ready for their intended use. Plant Property and Equipments are recorded at historical cost less accumulated depreciation as per GAAP, US. Although the company follows the same accounting policies but as per the international standard it is also recommended that if it is possible then the company should follow fair value model whereby the entity should measure its asset at fair value less depreciation at reporting period end. Moreover, only those assets that are used for operational purposes are covered within this standard. The management must define what the capital expenditure is and what the revenue expenditures are. Besides that, also the standard on borrowing cost must also be followed properly.

Goodwill and Intangible Asset:

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Goodwill is not amortized, but instead is tested for impairment at least annually. The goodwill impairment test is performed at the reporting unit level and is a two-step analysis. First, the fair value of each reporting unit is compared to its book value. If the fair value of the reporting unit is less than its book value, the Company performs a hypothetical purchase price allocation based on the reporting units fair value to determine the fair value of the reporting units goodwill. Fair value is determined using a combination of present value techniques and market prices of comparable businesses. Intangible assets are generally amortized on a straight line basis over their respective estimated useful lives ranging from one to 14 years. The Company has no intangible assets with indefinite useful lives.

Impact of Accounting Policies adopted on Ratio Analysis:

1. Starting with the disadvantage of ratio analysis, I would like to comment that if the accounting policies of two companies are into the same industry then perhaps we will not be able to comment on the results of both the entity.

2. In case of profitability ratio, if the management follows accelerating revenue recognition policy then the company will book high gross profit margin than the one it would have been if not recorded on that basis. Moreover if there is any misclassification of expenditure between operating, R & D, Administration and Finance cost then also there will be miscomputation of net Profit and in return net profit ratio will not provide exact picture.

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3. Turnover ratios like Inventory turnover, Receivables Turnover, Payables Turnover, etc. provides information regarding how efficiently the company is managing its assets. If the company values its inventory as per normal provision, without considering the obsolete stock then there will be more value in the denominator which will result in lower inventory turnover ratio.

4. The management must prescribe its definition of the term Capital Employed because some entity use entire capital employed (equity as well as debts) as capital Employed and while some of the entity excludes short term debt from the calculation.

5. In case of Asset Turnover ratio if the entity has not capitalised the expenses properly then it may be possible that the capitalised value of the asset is under or overvalued and the same will result in decrease or increase in the ration of Total Asset turnover.

6. If the Motorola Inc. management plan to issue any convertible security then the management will have to calculate the effect of the convertible security on earning per share that we usually term as Diluted Earnings per Share.

Thus, looking to the above observations and remarks on the accounting policies and impact of the same on ratio analysis, it seems that what a vital role these accounting policies play in a financial reporting of any entity. So it is required on the part of the management to

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choose the accounting policies with utmost care and looking to the nature of the transaction and economic and industry requirement.

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