Nokia 2009 Annual Report Download - page 195

1. Accounting principles (Continued)
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 and critical accounting judgements
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
probable that economic benefits associated with the transaction will flow to the Group and the costs
incurred or to be incurred in respect of the transaction can be measured reliably. Sales may materially
change if management’s assessment of such criteria was determined to be inaccurate. The Group
enters into transactions involving multiple components consisting of any combination of hardware,
services and software. The consideration received from these transactions is allocated to each
separately identifiable component based on the relative fair value of each component. The
consideration allocated to each component is recognized as revenue when the revenue recognition
criteria for that component have been met. Determination of the fair value for each component
requires the use of estimates and judgment taking into consideration factors such as the price when
the component is sold separately by the Group or the price when a similar component is sold
separately by the Group or a third party, which may have a significant impact on the timing and
amount of revenue recognition.
The Group makes price protection adjustments based on estimates of future price reductions and
certain agreed customer inventories at the date of the price adjustment. Possible changes in these
estimates could result in revisions to the sales in future periods.
Revenue from contracts involving solutions achieved through modification of complex
telecommunications equipment is recognized on the percentage of completion basis when the
outcome of the contract can be estimated reliably. Recognized revenues and profits are subject to
revisions during the project in the event that the assumptions regarding the overall project outcome
are revised. Current sales and profit estimates for projects may materially change due to the early
F21
Notes to the Consolidated Financial Statements (Continued)