Nokia 2007 Annual Report Download - page 162

1. Accounting principles (Continued)
received net of any transaction costs are credited to share premium and the reserve for invested non
restricted equity.
Treasury shares
The Group recognizes acquired treasury shares as a deduction from equity at their acquisition cost.
When cancelled, the acquisition cost of treasury shares is recognized in retained earnings.
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
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 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19
Notes to the Consolidated Financial Statements (Continued)