Facebook 2012 Annual Report Page 86

Business Combinations

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and

intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase
consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such
valuations require management to make significant estimates and assumptions, especially with respect to
intangible assets. During the measurement period, which is one year from the acquisition date, we may record
adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the
conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets

We evaluate the recoverability of property and equipment and amortizable intangible assets for possible

impairment whenever events or circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future
undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of
property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to
fair value. We have not recorded any such impairment charge during the years presented.

We review goodwill for impairment at least annually or more frequently if events or changes in

circumstances indicate that the carrying value of goodwill may not be recoverable. We have elected to first assess
the qualitative factors to determine whether it is more likely than not that the fair value of our single reporting
operating unit is less than its carrying amount as a basis for determining whether it is necessary to perform the
two-step goodwill impairment under the new authoritative guidance issued by the Financial Accounting
Standards Board (FASB). If we determine that it is more likely than not that its fair value is less than its carrying
amount, then the two-step goodwill impairment test is performed. The first step, identifying a potential
impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount
exceeds its fair value, the second step would need to be performed; otherwise, no further step is required. The
second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying
amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as
an impairment loss, and the carrying value of goodwill is written down to fair value. As of December 31, 2012,
no impairment of goodwill has been identified.

Acquired amortizable intangible assets, which are included in goodwill and intangible assets, net, are

amortized on a straight-line basis over the estimated useful lives of the assets. The estimated remaining useful
lives for intangible assets range from less than one year to 17 years.

In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of

property and equipment and amortizable intangible assets. If we reduce the estimated useful life assumption for
any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated
useful life.

Deferred Revenue and Deposits

Deferred revenue consists of billings in advance of revenue recognition. Deposits relate to unused virtual

currency held by our users. Once this virtual currency is utilized by a user, approximately 70% of this amount
would then be payable to the Platform developer and the balance would be recognized as revenue.

Deferred revenue and deposits consists of the following (in millions):

December 31,

2012

2011

Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 75

Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred revenue and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 30

$ 90