accounting for iPhone at apple inc. solution

Q1 Answer: The numbers in the Financial Statement were different under the two methods because under the non-GAAP accounting method apple gave the revenue numbers without the use of subscription accounting, which recognized the revenue at the point of sale. Moreover the non-GAAP numbers did not adjust the estimated costs associated with its plan to provide new features and software upgrades to iPhone buyers free of charge and these figures were not prepared under a comprehensive set of rules or principles. Whereas in subscription accounting the cash received was reported at the time that the subscription was purchased but only recorded the revenue as each issue of subscription was delivered. The remaining balance gets deferred into a liability account called unearned or deferred revenue.

Q2 Answer: I think the GAAP accounting numbers best reflect the economic reality the reason being, the GAAP numbers adjust the estimated costs associated with the companies plan to provide for new features and software upgrades to iPhone buyers which were free of charge. Also the GAAP accounting did not put too much weight on iPhone, as iPhone sales were driven by market forces and should be heavily relied upon for cash revenue numbers for valuation and ratios.

Q3 Answer: I believe it only adds to the confusion the reason being it does not depict the economic reality. It is focused more on higher revenue numbers rather that numbers which are real and sustainable for the future. Future predictions on goods like phone in a volatile market like today is very hard even for the best of analysts the reason being no one can predict the buyer sentiments and the technological advancements the competitors possess.