Nokia 2004 Annual Report Download - page 138

Notes to the Consolidated Financial Statements (Continued)
1. Accounting principles (Continued)
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 first in first out (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
overheads are included in the inventory values.
An allowance is recorded for excess inventory and obsolescence.
Cash and cash equivalents
Bank and cash consist of cash at bank and in hand. Cash equivalents consist of highly liquid
available-for-sale investments purchased with remaining maturities at the date of acquisition of
three months or less.
Short-term investments
The Group considers all highly liquid marketable securities purchased with maturity at acquisition
of more than three months as short-term investments. They are included in current
available-for-sale investments, liquid assets, in the balance sheet.
Accounts receivable
Accounts receivable are carried at the original invoice amount to customers less an estimate made
for doubtful receivables based on a periodic review of all outstanding amounts, which includes an
analysis of historical bad debt, customer concentrations, customer creditworthiness, current
economic trends and changes in our customer payment terms. Bad debts are written off when
identified.
Borrowings
Borrowings are classified as originated loans and are recognized initially at an amount equal to
the proceeds received, net of transaction costs incurred. In subsequent periods, they are stated at
amortized cost using the effective yield method; any difference between proceeds (net of
transaction costs) and the redemption value is recognized in the profit and loss account over the
period of the borrowings.
Loans to customers
Loans to customers are recorded at amortized cost. Loans are subject to regular and thorough
review as to their collectibility and as to available collateral; in the event that any loan is deemed
not fully recoverable, provision is made to reflect the shortfall between the carrying amount and
the present value of the expected cash flows. Interest income on loans to customers is accrued
monthly on the principal outstanding at the market rate on the date of financing and is included
within other operating income within selling, general and administrative expenses.
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