Nokia 2003 Annual Report Download - page 120

Notes to the Consolidated Financial Statements (Continued)
1. Accounting principles (Continued)
Sales and cost of sales from contracts involving solutions achieved through modification of
telecommunications equipment are recognized on the percentage of completion method when the
outcome of the contract can be estimated reliably. A contract’s outcome can be estimated reliably
when total contract revenue and the costs to complete the contract can be estimated reliably, it is
probable that the economic benefits associated with the contract will flow to the company and the
stage of contract completion can be measured reliably. When the Group is not able to meet those
conditions, the policy is to recognize revenues only equal to costs incurred to date, to the extent
that such costs are expected to be recovered.
Completion is measured by reference to cost incurred to date as a percentage of estimated total
project costs, the cost-to-cost method.
The percentage of completion method relies on estimates of total expected contract revenue and
costs, as well as dependable measurement of the progress made towards project completion.
Recognized revenues and profits are subject to revisions during the project in the event that the
assumptions regarding the overall project outcome are revised. The cumulative impact of a
revision in estimates is recorded in the period such revisions become known and estimable. Losses
on projects in progress are recognized immediately when known and estimable.
All the Group’s material revenue streams are recorded according to the above policies.
Shipping and handling costs
The costs of shipping and distributing products are included in cost of sales.
Research and development
Research and development costs are expensed as they are incurred, except for certain
development costs, which are capitalized when it is probable that a development project will be a
success, and certain criteria, including commercial and technological feasibility, have been met.
Capitalized development costs, comprising direct labor and related overhead are amortized on a
systematic basis over their expected useful lives between two and five years.
Other intangible assets
Expenditures on acquired patents, trademarks and licenses are capitalized and amortized using the
straight-line method over their useful lives, but not exceeding 20 years. Where an indication of
impairment exists, the carrying amount of any intangible asset is assessed and written down to
its recoverable amount. Costs of software licenses associated with internal-use software are
capitalized. These costs are included within other intangible assets and are amortized over a
period not to exceed three years.
Pensions
The Group companies have various pension schemes in accordance with the local conditions and
practices in the countries in which they operate. The schemes are generally funded through
payments to insurance companies or to trustee-administered funds as determined by periodic
actuarial calculations.
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