Nokia 2006 Annual Report Download - page 152

Notes to the Consolidated Financial Statements (Continued)
1. Accounting principles (Continued)
In addition to the cost of materials and direct labor, an appropriate proportion of production
overhead is included in the inventory values.
An allowance is recorded for excess inventory and obsolescence based on the lower of cost or net
realizable value.
Accounts receivable
Accounts receivable are carried at the original amount invoiced to customers, which is considered to
be fair value, less allowances for doubtful accounts based on a periodic review of all outstanding
amounts including an analysis of historical bad debt, customer concentrations, customer
creditworthiness, current economic trends and changes in our customer payment terms. Bad debts
are written off when identified.
Cash and cash equivalents
Bank and cash consist of cash at bank and in hand. Cash equivalents consist of highly liquid
availableforsale investments purchased with remaining maturities at the date of acquisition of
three months or less.
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 interest method; any difference between proceeds (net of transaction costs) and
the redemption value is recognized in profit or loss 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, a 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 bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. The enacted or substantially enacted tax rates as of each balance
sheet date that are expected to apply in the period when the asset is realized or the liability is
settled are used in the measurement of deferred tax assets and liabilities.
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