Nokia 2005 Annual Report Download - page 154

Notes to the Consolidated Financial Statements (Continued)
1. Accounting principles (Continued)
The Group recognizes the estimated liability to repair or replace products still under warranty at
the balance sheet date. The provision is calculated based on historical experience of the level of
repairs and replacements.
The Group recognizes the estimated liability for non-cancellable purchase commitments for
inventory in excess of forecasted requirements at each balance sheet date.
The Group recognizes a provision for the estimated future settlements related to asserted and
unasserted Intellectual Property Rights (IPR) infringements, based on the probable outcome of each
case as of each balance sheet date.
The Group recognizes a provision for pension and other social costs on unvested equity
instruments based upon local statutory law, net of deferred compensation, which is recorded as a
component of shareholders equity. The provision is considered as a cash-settled share-based
payment and is measured by reference to the fair value of the equity benefits provided, and the
amount of the provision is adjusted to reflect the changes in the Nokia share price. The Group
recognizes a provision for prior year tax contingencies based upon the estimated future settlement
amount at each balance sheet date.
Share-based compensation
The Group has three types of equity settled share based compensation schemes for employees:
stock options, performance shares and restricted shares. Employee services received, and the
corresponding increase in equity, are measured by reference to the fair value of the equity
instruments as at the date of grant, excluding the impact of any non-market vesting conditions.
Non-market vesting conditions attached to the performance shares are included in assumptions
about the number of shares that the employee will ultimately receive. On a regular basis the
Group reviews the assumptions made and revises its estimates of the number of performance
shares that are expected to be settled, where necessary. Share-based compensation is recognized
as an expense in the profit and loss account over the service period. When stock options are
exercised, the proceeds received net of any transaction costs are credited to share capital (nominal
value) and share premium.
Dividends
Dividends proposed by the Board of Directors are not recorded in the financial statements until
they have been approved by the shareholders at the Annual General Meeting.
Earnings per share
The Group calculates both basic and diluted earnings per share in accordance with IAS 33,
Earnings per share, (IAS 33). Under IAS 33, basic earnings per share is computed using the
weighted average number of shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of shares outstanding during the period plus the
dilutive effect of stock options, restricted shares and performance shares outstanding during the
period.
Use of estimates
The preparation of financial statements in conformity with IFRS requires the application of
judgment by management in selecting appropriate assumptions for calculating financial estimates,
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