Nokia 2008 Annual Report Download - page 163

1. Accounting principles (Continued)
The Group provides for onerous contracts based on the lower of the expected cost of fulfilling the
contract and the expected cost of terminating the contract.
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. A separate vesting period is defined for each quarterly lot of
the stock options plans. When stock options are exercised, the proceeds received net of any
transaction costs are credited to share premium and the reserve for invested nonrestricted equity.
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.
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. 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, which
inherently contain some degree of uncertainty. Management bases its estimates on historical
experience and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the reported carrying
values of assets and liabilities and the reported amounts of revenues and expenses that may not be
readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Set forth below are areas requiring significant judgment and estimation that may have an impact on
reported results and the financial position.
Revenue recognition
Sales from the majority of the Group are recognized when the significant risks and rewards of
ownership have transferred to the buyer, continuing managerial involvement usually associated with
ownership and effective control have ceased, the amount of revenue can be measured reliably, it is
F19
Notes to the Consolidated Financial Statements (Continued)