Nokia 2007 Annual Report Download - page 158

1. Accounting principles (Continued)
Accounts receivable
Accounts receivable are carried at the original amount invoiced to customers, which is considered to
be fair value, less allowances for doubtful accounts based on a periodic review of all outstanding
amounts including 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.
Financial liabilities
Loans payable
Loans payable are recognized initially at fair value, net of transaction costs incurred. Any difference
between the fair value and the proceeds received is recognized in profit and loss at initial
recognition. In the subsequent periods, they are stated at amortized cost using the effective interest
method. The long term portion of loans payable is included on the balance sheet under longterm
interestbearing liabilities and the current portion under current portion of longterm loans.
Accounts payable
Accounts payable are carried at the original invoiced amount, which is considered to be fair value due
to the shortterm nature.
Derivative financial instruments
All derivatives are recorded at fair value according to the same principles but the accounting
treatment varies according to whether the derivatives are designated and qualify under hedge
accounting.
Derivatives not designated in hedge accounting relationships carried at fair value through profit and
loss
Fair values of forward rate agreements, interest rate options, futures contracts and exchange traded
options are calculated based on quoted market rates at each balance sheet date. Discounted cash
flow analyses are used to value interest rate and currency swaps. Changes in the fair value of these
contracts are recognized in the profit and loss account.
Fair values of cash settled equity derivatives are calculated by revaluing the contract at year end
quoted market rates. Changes in fair value are recognized in the profit and loss account.
Forward foreign exchange contracts are valued at the market forward exchange rates. Changes in fair
value are measured by comparing these rates with the original contract forward rate. Currency
options are valued at each balance sheet date by using the Garman & Kohlhagen option valuation
model. Changes in the fair value on these instruments are recognized in the profit and loss account.
Embedded derivatives are identified and monitored by the Group and recorded at fair value as at each
balance sheet date. In assessing the fair value of embedded derivatives, the Group employs a variety
of methods including option pricing models and discounted cash flow analysis using assumptions
that are based on market conditions existing at each balance sheet date. The fair value changes are
recognized in the profit and loss account.
F15
Notes to the Consolidated Financial Statements (Continued)