TomTom 2013 Annual Report Download - page 53

Share premium
The share premium represents the amount by which the fair value of the consideration received exceeds the nominal value of shares issued.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Provisions
Provisions are recognised when:
• The group has a present obligation as a result of a past event;
• It is probable that the group will be required to settle that obligation; and
• The amount can be reliably estimated.
Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the balance sheet date, and
are discounted to present value where the effect is material.
Provisions for warranty costs are recognised at the date of sale of the relevant products, at management's best estimate of the expenditure
required to settle the group's obligation. Warranty costs are recorded within cost of sales.
Other provisions include legal claims, pension liabilities and tax risks for which it is probable that an outflow of resources will be required to
settle the obligation.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequently, amounts are stated at amortised cost with
the difference being recognised in the income statement over the period of the borrowings using the effective interest rate method.
3. Financial risk management
Financial risk factors
The group's activities result in exposure to a variety of financial risks: including credit, foreign currencies, liquidity and interest rate risk.
Management policies have been established to identify, analyse and monitor these risks, and to set appropriate risk limits and controls. Financial
risk management is carried out in accordance with our Corporate Treasury Policy. The written principles and policies are reviewed periodically
to reflect changes in market conditions, the activities of the business and laws and regulations affecting our business.
Credit
Credit risk arises primarily from cash and cash equivalents held at financial institutions, and, to a certain extent, from trade receivables relating
to our wholesale customers.
Cash balances are held with counterparties that have a credit risk rating of at least A-, as rated by an acknowledged rating agency. Moreover,
to avoid significant concentration of our exposure to particular financial institutions, we ensure that transactions and businesses are properly
spread among different counterparties.
Our exposure to wholesale customers is managed through establishing proper credit limits and continuous credit risk assessments for each
individual customer.
Our procedures include aligning our credit and trading terms and conditions with our assessment of the individual characteristics and risk
profile of each customer. This assessment is made based on our past experiences and independent ratings from external rating agencies
whenever available.
As at 31 December 2013, our total bad debt provision represented approximately 0.3% of our group revenue (2012: 0.2%).
Notes to the Consolidated Financial Statements / Continued
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