Nokia 2012 Annual Report Download - page 100

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 element have been met. The Group determines the fair value of each component by
taking into consideration factors such as the price when the component is sold separately by the
Group, the price when a similar component is sold separately by the Group or a third party and cost
plus a reasonable margin.
Nokia Siemens Networks revenue and cost of sales 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. This occurs when total
contract revenue and the cost to complete the contract can be estimated reliably, it is probable that
economic benefits associated with the contract will flow to the Group, and the stage of contract
completion can be measured. When we are not able to meet one or more of those conditions, the
policy is to recognize revenues only equal to costs incurred to date, to the extent that such costs are
expected to be recovered. Completion is measured by reference to costs incurred to date as a
percentage of estimated total project costs using the cost-to-cost method.
The percentage of completion method relies on estimates of total expected contract revenue and
costs, as well as the dependable measurement of the progress made towards completing the particular
project. Recognized revenues and profit are subject to revisions during the project in the event that the
assumptions regarding the overall project outcome are revised. The cumulative impact of a revision in
estimates is recorded in the period such revisions become probable and can be estimated reliably.
Losses on projects in progress are recognized in the period they become probable and can be
estimated reliably.
Nokia Siemens Networks’ current sales and profit estimates for projects may change due to the early
stage of a long-term project, new technology, changes in the project scope, changes in costs, changes
in timing, changes in customers’ plans, realization of penalties and other corresponding factors.
Customer Financing
We have provided a limited number of customer financing arrangements and agreed extended
payment terms with selected customers. In establishing credit arrangements, management must
assess the creditworthiness of the customer and the timing of cash flows expected to be received
under the arrangement. However, should the actual financial position of our customers or general
economic conditions differ from our assumptions, we may be required to reassess the ultimate
collectability of such financings and trade credits, which could result in a write-off of these balances in
future periods and thus negatively impact our profits in future periods. Our assessment of the net
recoverable value considers the collateral and security arrangements of the receivable as well as the
likelihood and timing of estimated collections. From time to time, the Group endeavors to mitigate this
risk through transfer of its rights to the cash collected from these arrangements to third-party financial
institutions on a non-recourse basis in exchange for an upfront cash payment. The financial impact of
the customer financing related assumptions mainly affects the Nokia Siemens Networks business. See
also Note 34(b) to our consolidated financial statements included in Item 18 of this annual report for a
further discussion of long-term loans to customers and other parties.
Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent
inability of our customers to make required payments. If financial conditions of our customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be
required in future periods. Management specifically analyzes accounts receivables and historical bad
99