Nokia 2008 Annual Report Download - page 155

1. Accounting principles (Continued)
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange prevailing at the dates of the
individual transactions. For practical reasons, a rate that approximates the actual rate at the date of
the transaction is often used. At the end of the accounting period, the unsettled balances on foreign
currency receivables and liabilities are valued at the rates of exchange prevailing at the yearend.
Foreign exchange gains and losses arising from balance sheet items, as well as fair value changes in
the related hedging instruments, are reported in Financial Income and Expenses.
Foreign Group companies
In the consolidated accounts all income and expenses of foreign subsidiaries are translated into Euro
at the average foreign exchange rates for the accounting period. All assets and liabilities of foreign
Group companies are translated into Euro at the yearend foreign exchange rates with the exception
of goodwill arising on the acquisition of foreign companies prior to the adoption of IAS 21 (revised
2004) on January 1, 2005, which is translated to Euro at historical rates. Differences resulting from the
translation of income and expenses at the average rate and assets and liabilities at the closing rate
are treated as an adjustment affecting consolidated shareholders’ equity. On the disposal of all or
part of a foreign Group company by sale, liquidation, repayment of share capital or abandonment, the
cumulative amount or proportionate share of the translation difference is recognized as income or as
expense in the same period in which the gain or loss on disposal is recognized.
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. An immaterial part
of the revenue from products sold through distribution channels is recognized when the reseller or
distributor sells the products to the end users. The Group records reductions to revenue for special
pricing agreements, price protection and other volume based discounts. Service revenue is generally
recognized on a straight line basis over the service period unless there is evidence that some other
method better represents the stage of completion. License fees from usage are recognized in the
period in which the customer reports them to the Group.
The Group enters into transactions involving multiple components consisting of any combination of
hardware, services and software. The commercial effect of each separately identifiable component of
the transaction is evaluated in order to reflect the substance of the transaction. The consideration
received from these transactions is allocated to each separately identifiable component based on the
relative fair value of each component. The Group determines the fair value of each component by
taking into consideration factors such as the price when the component or a similar component is
sold separately by the Group or a third party. The consideration allocated to each component is
recognized as revenue when the revenue recognition criteria for that component have been met. If
the Group is unable to reliably determine the fair value attributable to the separately identifiable
undelivered components, the Group defers revenue until the revenue recognition criteria for the
undelivered components have been met.
In addition, sales and cost of sales from contracts involving solutions achieved through modification
of complex telecommunications equipment are recognized using the percentage of completion
method when the outcome of the contract can be estimated reliably. A contract’s outcome can be
estimated reliably when total contract revenue and the costs to complete the contract can be
F11
Notes to the Consolidated Financial Statements (Continued)