Nokia 2008 Annual Report Download - page 157

1. Accounting principles (Continued)
For defined benefit plans, pension costs are assessed using the projected unit credit method: The
pension cost is recognized in 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 with appropriate maturities.
Actuarial gains and losses outside the corridor are recognized over the average remaining service
lives of employees. The corridor is defined as ten percent of the greater of the value of plan assets or
defined benefit obligation at the beginning of the respective year.
Past service costs are recognized immediately in income, unless the changes to the pension plan are
conditional on the employees remaining in service for a specified period of time (the vesting period).
In this case, the past service costs are amortized on a straightline basis over the vesting period.
The liability (or asset) recognized in the balance sheet is pension obligation at the closing date less
the fair value of plan assets, the share of unrecognized actuarial gains and losses, and past service
costs.
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33years
Production machinery, measuring and test equipment ............ 13years
Other machinery and equipment ............................. 310years
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. Leasehold improvements are
depreciated over the shorter of the lease term or useful life.
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 recognized in the profit and loss account on a straightline basis over the lease terms unless
another systematic approach is more representative of the pattern of the user’s benefit.
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 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
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.
F13
Notes to the Consolidated Financial Statements (Continued)