Nokia 2005 Annual Report Download - page 153

Notes to the Consolidated Financial Statements (Continued)
1. Accounting principles (Continued)
Short-term Investments
The Group considers all highly liquid marketable securities purchased with maturity at acquisition
of more than three months as short-term investments. They are included in current available-for-
sale investments, liquid assets, in the balance sheet.
Borrowings
Borrowings are classified as loans and are recognized initially at an amount equal to the proceeds
received, net of transaction costs incurred. In subsequent periods, they are stated at amortized cost
using the effective yield method; any difference between proceeds (net of transaction costs) and
the redemption value is recognized in the profit and loss account over the period of the
borrowings.
Loans to customers
Loans to customers are recorded at amortized cost. Loans are subject to regular and thorough
review as to their collectibility and as to available collateral; in the event that any loan is deemed
not fully recoverable, provision is made to reflect the shortfall between the carrying amount and
the present value of the expected cash flows. Interest income on loans to customers is accrued
monthly on the principal outstanding at the market rate on the date of financing and is included
in other operating income.
Income taxes
Current taxes are based on the results of the Group companies and are calculated according to
local tax rules.
Deferred tax assets and liabilities are determined, using the liability method, for all temporary
differences arising between the tax basis of assets and liabilities and their carrying values for
financial reporting purposes. Currently enacted tax rates are used in the determination of deferred
income tax.
Under this method the Group is required, in relation to an acquisition, to make provision for
deferred taxes on the difference between the fair values of the net assets acquired and their
tax bases.
The principal temporary differences arise from intercompany profit in inventory, warranty and
other provisions, untaxed reserves and tax losses carried forward. Deferred tax assets relating to
the carry forward of unused tax losses are recognized to the extent that it is probable that future
taxable profit will be available against which the unused tax losses can be utilized.
Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result
of past events, it is probable that an outflow of resources will be required to settle the obligation
and a reliable estimate of the amount can be made. Where the Group expects a provision to be
reimbursed, the reimbursement would be recognized as an asset but only when the
reimbursement is virtually certain.
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