TomTom groups accounting policies with regard to revenue recognition is presented below. For all other significant accounting policies reference is made to page 45 to 51 in our Annual Report 2011.
Revenue is measured as the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business. Revenue is reduced for estimated customer returns, rebates and other similar allowances.
Sale of goods
Revenue on the sale of goods is only recognised when the risks and rewards of ownership of goods are transferred to the groups customers (which include distributors, retailers, end-users and Original Equipment Manufacturers (OEMs)). The risks and rewards of ownership are generally transferred at the time the product is shipped and delivered to the customer and, depending on the delivery conditions, title and risk have passed to the customer and acceptance of the product, when contractually required, has been obtained. In cases where contractual acceptance is not required, revenue is recognised when management has established that all aforementioned conditions for revenue recognition have been met.
Estimates of the financial impact of returns, as well as sales incentives are made based on historical data and expectations of future sales. For further details, refer to note 4 in our Annual Report 2011, critical accounting estimates and judgements.
Royalty revenue is generated through licensing of geographic and/or other traffic-/location-based content to customers. Revenue is recognised based on the contractual terms and substance of the arrangements with the customers.
Sale of services
Services revenue is generated by map update services, content sales and connected navigation services for commercial fleets. The revenue relating to the service element is recognised over the service period.
Multiple element arrangements
Bundled sales or multiple-element arrangements require the group to deliver equipment (e.g. navigation hardware) and/or a number of services (e.g. traffic information services) under one agreement, or under a series of agreements that are commercially linked. In such multiple-element arrangements, the consideration received is allocated to each separately identifiable element, based on relative fair values or on the residual method. The fair value of each element is determined based on the current market price of each of the elements when sold separately. The amount of revenues allocated to the hardware element is recognised in line with the accounting policy for the sale of goods as described above. The revenue relating to the service element is recognised over the agreed or estimated service period on a straight-line basis. To the extent that there is a discount on the arrangement, such discount is allocated between the elements of the contract on a pro rata basis in such a manner as to reflect the fair value of the elements.