Pfizer_Case Study 2 Solution Available Free

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Executive Summary
The key operations Pfizer carries out is the manufacturing and selling of biological
pharmaceutical products and the revenue is recognised once the customers take the delivery
of the products. The company applies the FIFO principle in the inventory valuation
determination and takes the paperwork on cost of goods sold accordingly. Intangible assets
and goodwill are capitalized and impaired annually, whilst tangible assets are accounted for at
historical cost being subject to any modification. During the season, we measure revenue
received from discounts and returns separately to report the net revenue. In general, Pfizer's
financial management strives to keep records updated regularly so that the operating results
are truly reflected while the assets are maintained in good shape through utilizing uniform
and steady accounting methods.

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Table of Contents
a) Core Operating Activity and Revenue Recognition ........................................................3
b) Accounting Treatment of Intangible Assets and Goodwill..............................................3
c) Accounting Treatment of Inventories ...........................................................................3
d) Policy on Amortization/Impairment of Intangible Assets...............................................4
e) Cost of Property, Plant, and Equipment (PP&E) .............................................................4
f) Total Cost of Non-Current Assets Acquired in 2023........................................................4
g) Disposition of Intangible and Tangible Assets................................................................4
h) Policy on Rebates, Chargebacks, Returns, and Other Revenue Accruals..........................5
i) Transactions Affecting Total Equity ...............................................................................5
j) Stock Option Compensation Plan..................................................................................5
k) Changes in Retained Profits (2021-2023).......................................................................5
l) Key Components of Comprehensive Income (2023).......................................................7
References...............................................................................................................................7

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ANSWER THE QUESTIONS
a. Core Operating Activity and Revenue Recognition:
Pfizer's primary business activity involves the manufacturing and sale of biopharmaceutical products.
This company, in its selling operations, triggers revenue when it deals with these goods in a state of
being in the possession of a customer. The moment of shipment or delivery to such customers is the
situation of control change from one hand to another to that of the customers (Pfizer Inc., 2023).
This timing is crucial for accurately reflecting Pfizer's performance in its financial statements. The
company distinguishes between product revenues, which are derived from the sale of its
biopharmaceutical products, and alliance revenues, which come from collaboration agreements. The
recognition of these revenues is based on the nature of the transaction and the satisfaction of
performance obligations, ensuring that the financial statements present a true and fair view of the
company's operations (Pfizer Inc., 2023).
b. Accounting Treatment of Intangible Assets and Goodwill:
Advantageously, Pfizer use intangible assets and goodwill fair value setting at the time of acquisition.
There is something intangible like patents and licenses which are being depreciated over assumed
useful lives time. Instead of amortizing goodwill and indefinite lives assets, they are impaired
annually through impairment testing if there are any indications of impairment (Pfizer, Inc. , 2023).
This accounting treatment impacts the balance sheet by increasing non-current assets and affects
the income statement through amortization expenses and potential impairment charges. The
impairment testing ensures that the carrying values of these assets do not exceed their recoverable
amounts, thereby providing a realistic valuation of the company's assets (Pfizer Inc., 2023).
c. Accounting Treatment of Inventories:
Pfizer's initial cost is determined according to the FIFO method while the lower of cost and net
realizable value formula was applied to all statements of inventories (Pfizer Inc., 2023). Such an
option helps to make sure that there is a true reflection of the current costs that the company incurs
by having the cost of inventory recorded on the balance sheet. The value at which inventories are
recorded in the income statement will directly impact this element cost of goods sold. Since
inventory costs are dealt with through the cost of goods sold and expensed, it affects the company's
net profit. By using the FIFO method, Pfizer aims to match the costs of its products with their
revenues, thereby providing an accurate measure of profitability (Pfizer Inc., 2023).

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Continuing with the analysis of Pfizer's financial statements and policies:
d. Policy on Amortization/Impairment of Intangible Assets
Pfizer capitalises intangible assets with finite life on a straight-line method, which can be seen
reflected in the income statement as intangibles amortisation expense during the useful life of such
assets. Consequently, this expenses results to the downsizing of the gross income amount at the end
of the month. Besides, it may also very badly affect the business growth rate on long-term for the
investor-owned companies that are expected to lose their potential revenue. Besides assessing the
goodwill and intangible assets indefinitely or more frequently whenever there are signs of equity
impairment Pfizer also tests segments’ cash flows for each corresponding segment (Pfizer Inc., 2023).
An impairment charge, if any, would lead to a significant reduction in the carrying value of the assets
on the balance sheet, impacting shareholders' equity and potentially the company's market value.
e. Cost of Property, Plant, and Equipment (PP&E)
The original cost of PP&E on the balance sheet as of December 31, 2023, is reported in Pfizer's
annual report. This amount includes the historical costs of assets, adjusted for subsequent additions,
disposals, or impairments (Pfizer Inc., 2023). The cost of PP&E is a crucial component of the
company's asset base and is essential for understanding the company's investment in its physical
infrastructure.
f. Total Cost of Non-Current Assets Acquired in 2023
To estimate the total cost of tangible and intangible non-current assets acquired in 2023, one can
review the cash flow statement and notes related to acquisitions and capital expenditures in Pfizer's
annual report (Pfizer Inc., 2023). The methods which are used for paying for these acquisitions could
be the proceeds produced by company’s operating activities, borrowing the money, or buying of the
shares from public. Understanding the total cost and financing methods provides insights into the
company's investment strategy and financial health.
g. Disposition of Intangible and Tangible Assets
The financial statements for Pfizer in 2023 contain information pertaining to any depreciation in
intangible and tangible assets disposals by the end of the reported period ending, also along with the
gross book value of sold assets (Pfizer Inc., 2023). These disposals can impact the company's asset
base and financial position, as well as potentially generate gains or losses that would be reflected in
the income statement.

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h. Policy on Rebates, Chargebacks, Returns, and Other Revenue Accruals
Pfizer's policies regarding rebates, chargebacks, returns, and other revenue accruals affect the timing
and amount of revenue recognized in the financial statements (Pfizer Inc., 2023). Such policies
further the determination of future stop credit and returns, and consequently net income reported
in the balance sheet. The recognition and the carrying forward of these classifications as well as the
future cash flows can also have implications due to the fact that they can be a depictation of
amounts that will be paid out or received in future periods.
A close examination into the detail of these policies and their financial implications requires direct
reference to the sections of Pfizer’s Form 10-K that cover the amortization and impairment of
intangible assets, the accounting for PP&E, the total amount of expended funds for non-current
assets acquired, and the policies related to revenue accruals.
i. Transactions Affecting Total Equity
Transactions that affect total equity in a company like Pfizer would include net income, dividends
paid, stock repurchases, and changes in accumulated other comprehensive income. The following
deals refer to the company's budget and the financial commitments that make up the shareholders'
equity page.
j. Stock Option Compensation Plan
When Pfizer characteristics of shares to employees through a stock option compensation program in
2023, it results to the diminish of existing shareholder's ownership proportion. An effect of the
scheme, such as dilution, can be estimated by looking through the company financial table which
have shown the notes of the share-based compensation. These numbers enable investors to react
properly to share ownership via the exchange of stock options.
k. Changes in Retained Profits (2021-2023)
To look at the changes in the company's retained profits for Pfizer from the year 2021 to the year
2023, you would analyse the statement of changes in the equity. This comment is an important
observation on the changes on the retained earnings over time, which essentially is influenced by the
company's earning within the period, in addition to what it shares with its owners. It has much to
imply by the company's capacity to recycle the revenue into other operations or in the form of
returns to the shareholders.
l. Key Components of Comprehensive Income (2023)

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Thoroughly, the Identifying income for Pfizer in 2022 will definitely involve the following necessary
elements: net profit and the other comprehensive income (OCI). OCI covers the areas that are not
included in net income statement such as the currency translation adjustments not realized, certain
investment's gain or loss, and pension adjustments amortized. If such OCI decrease in 2023 versus
2022, it is critical to consider theses OCI component to help identifying the factors that drive this
movement.

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References
Pfizer Inc. (2023). 2023 Form 10-K. [Form 10-K].