The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.
The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The condensed consolidated financial statements include the accounts of Meta Platforms, Inc., its subsidiaries where we have controlling financial interests, and any variable interest entities for which we are deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated.
The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2022.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, valuation of non-marketable equity securities, income taxes, loss contingencies, including the ultimate resolution of litigation, regulatory matters, and asserted and unasserted claims, valuation of long-lived assets including goodwill, intangible assets, and property and equipment, and their associated estimated useful lives, valuation of purchase commitments, credit losses of available-for-sale debt securities and accounts receivable, fair value of financial instruments and fair value of leases. These estimates are based on management's knowledge about current events, interpretations of regulations, and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.
In connection with our periodic reviews of the estimated useful lives of property and equipment, we extended the estimated average useful lives of a majority of the servers and network assets from four years to 4.5 years, effective the second quarter of 2022, as a result of expected longer refresh cycles in our data centers. The financial impact of this change in estimate was a reduction in depreciation expense of $482 million and an increase in net income of $394 million, or $0.14 per diluted share for the nine months ended September 30, 2022. The impact from the change in our estimates was calculated based on the servers and network assets existing as of the effective date of the change and applying the revised estimated useful lives prospectively.
Significant Accounting Policies
There have been no material changes to our significant accounting policies from our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, certain of which are further discussed below.
Long-lived Assets
In the third quarter of 2022, we made a decision to sublease, early terminate, or abandon several office buildings under operating leases to align our real property lease arrangements with our anticipated operating needs. As a result, we also began to review the related operating lease right-of-use (ROU) assets and leasehold improvements for impairment under Accounting Standards Codification (ASC) Topic 360.
In connection with the above decision, in the three months ended September 30, 2022, we recorded an impairment loss of $413 million for operating lease ROU assets and leasehold improvements. The impairment loss represents the amount by which the carrying value exceeded the estimated fair value of these assets. Of the total impairment loss, $33 million is included in cost of revenue, $231 million in research and development, $74 million in marketing and sales, and $75 million in general and administrative on our condensed consolidated statements of income during the three months ended September 30, 2022. The impairment loss recorded under our Family of Apps (FoA) segment was $338 million with the remaining $75 million recognized in our Reality Labs (RL) segment. The fair values of the impaired assets were estimated using discounted cash flow models (income approach) based on market participant assumptions with Level 3 inputs. The assumptions used in estimating fair value include the expected downtime prior to the commencement of future subleases, projected sublease income over the remaining lease periods, and discount rates that reflect the level of risk associated with receiving future cash flows.
As we continue to evaluate our real property lease arrangements, we expect to reduce more office space and incur additional impairment charges in the foreseeable future, which may have a material adverse impact on our consolidated financial statements in the aggregate.
Recently Adopted Accounting Pronouncements
On January 1, 2022, we early adopted Accounting Standards Update (ASU) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
On July 1, 2022, we early adopted ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03), which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In November 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance (ASU 2021-10), which requires the disclosure of government assistance received by most business entities relating to: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on a business entity's financial statements. This guidance will be effective for our annual financial statements for the year ended December 31, 2022. The adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
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