Nokia 2006 Annual Report Download - page 153

Notes to the Consolidated Financial Statements (Continued)
1. Accounting principles (Continued)
The principal temporary differences arise from intercompany profit in inventory, warranty and other
provisions, untaxed reserves and tax losses carried forward. Deferred tax assets 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. Deferred tax liabilities are recognized for temporary differences that arise
between the fair value and tax base of identifiable net assets acquired in business combinations.
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 is recognized as an asset only when the reimbursement is virtually
certain.
The Group recognizes the estimated liability to repair or replace products still under warranty at
each 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. In accordance with the requirements applying to cashsettled share
based payment transactions, this provision is measured at fair value and remeasurement of the fair
value of the provision is recognized in profit or loss for the period.
The Group recognizes a provision for tax contingencies based upon the estimated future settlement
amount at each balance sheet date.
Sharebased compensation
The Group offers 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 of 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, where necessary, revises its estimates of the number of performance
shares that are expected to be settled. 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.
Treasury shares
The Group recognizes acquired treasury shares as a deduction from equity at their acquisition cost.
When cancelled, the acquisition cost of treasury shares is recognized in retained earnings and the
par value of the corresponding share capital is recognized in share issue 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.
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