Nokia 2003 Annual Report Download - page 121

Notes to the Consolidated Financial Statements (Continued)
1. Accounting principles (Continued)
The Group’s contributions to defined contribution plans and to multi-employer and insured plans
are charged to the profit and loss account in the period to which the contributions relate.
For defined benefit plans, principally the reserved portion of the Finnish TEL system, pension costs
are assessed using the projected unit credit method: the cost of providing pensions is charged to
the profit and loss account so as to spread the service cost over the service lives of employees. The
pension obligation is measured as the present value of the estimated future cash outflows using
interest rates on high quality corporate bonds that have terms to maturity approximating the
terms of the related liabilities. Actuarial gains and losses outside the corridor are recognized over
the average remaining service lives of employees.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is
recorded on a straight-line basis over the expected useful lives of the assets as follows:
Buildings and constructions ................................ 20–33 years
Production machinery, measuring and test equipment ........... 3 years
Other machinery and equipment ............................ 3–10 years
Land and water areas are not depreciated.
Maintenance, repairs and renewals are generally charged to expense during the financial period in
which they are incurred. However, major renovations are capitalized and included in the carrying
amount of the asset when it is probable that future economic benefits in excess of the originally
assessed standard of performance of the existing asset will flow to the Group. Major renovations
are depreciated over the remaining useful life of the related asset.
Gains and losses on the disposal of fixed assets are included in operating profit/loss.
Leases
The Group has entered into various operating leases, the payments under which are treated as
rentals and charged to the profit and loss account on a straight-line basis over the lease terms.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using
standard cost, which approximates actual cost, on a first in first out (FIFO) basis. Net realizable
value is the amount that can be realized from the sale of the inventory in the normal course of
business after allowing for the costs of realization.
In addition to the cost of materials and direct labor, an appropriate proportion of production
overheads are included in the inventory values.
An allowance is recorded for excess inventory and obsolescence.
Cash and cash equivalents
The Group manages its short-term liquidity through holdings of cash and highly liquid interest-
bearing securities (included as current available-for-sale investments in the balance sheet). For the
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