Nokia 2011 Annual Report Download - page 233

Warranty provisions
The Group provides for the estimated cost of product warranties at the time revenue is recognized. The
Group’s warranty provision is established based upon best estimates of the amounts necessary to
settle future and existing claims on products sold as of each balance sheet date. As new products
incorporating complex technologies are continuously introduced, and as local laws, regulations and
practices may change, changes in these estimates could result in additional allowances or changes to
recorded allowances being required in future periods.
Provision for intellectual property rights, or IPR, infringements
The Group provides for the estimated future settlements related to asserted and unasserted past
alleged IPR infringements based on the probable outcome of potential infringement. IPR infringement
claims can last for varying periods of time, resulting in irregular movements in the IPR infringement
provision. The ultimate outcome or actual cost of settling an individual infringement may materially vary
from estimates.
Legal contingencies
Legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions
against the Group. Provisions are recorded for pending litigation when it is determined that an unfavorable
outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain
nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates.
Capitalized development costs
The Group capitalizes certain development costs when it is probable that a development project will
generate future economic benefits and certain criteria, including commercial and technological
feasibility, have been met. Should a product fail to substantiate its estimated feasibility or life cycle,
material development costs may be required to be written-off in future periods.
Business combinations
The Group applies the acquisition method of accounting to account for acquisitions of businesses. The
consideration transferred in a business combination is measured as the aggregate of the fair values of
the assets transferred, liabilities incurred towards the former owners of the acquired business and
equity instruments issued. Identifiable assets acquired, and liabilities assumed by the Group are
measured separately at their fair value as of the acquisition date. Non-controlling interests in the
acquired business are measured separately based on their proportionate share of the identifiable net
assets of the acquired business. The excess of the cost of the acquisition over Nokia’s interest in the
fair value of the identifiable net assets acquired is recorded as goodwill.
The allocation of fair values to the identifiable assets acquired and liabilities assumed is based on
various valuation assumptions requiring management judgment. Actual results may differ from the
forecasted amounts and the difference could be material. See also Note 9.
Assessment of the recoverability of long-lived assets, intangible assets and goodwill
The recoverable amounts for long-lived assets, intangible assets and goodwill have been determined
based on the expected future cash flows attributable to the asset or cash-generating unit discounted to
present value. The key assumptions applied in the determination of recoverable amount include
discount rate, length of an explicit forecast period, estimated growth rates, profit margins and level of
operational and capital investment. Amounts estimated could differ materially from what will actually
occur in the future. See also Note 8.
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