Investor Presentaiton
CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | NET WORKING CAPITAL
3.2 ACCOUNTS RECEIVABLE AND
CONTRACT ASSETS AND LIABILITIES
Changes in contract assets and liabilities
The order book representing the unsatisfied performance
obligations with respect to new equipment and modernization
contracts stood at EUR 9,026.1 (8,564.0) million as at Dec 31,
2022. The vast majority of the order book is expected to be
recognized as revenue within the next 12 months from the
end of the reporting period. However, lead-times especially in
the long-term major projects are somewhat longer depending
on the size and complexity of the projects.
The changes in unbilled contract revenue, advance
payments received and deferred revenue follow the
developments in business but are also impacted by the
normal fluctuation in project progress when applying
percentage of completion method for recognition of revenue.
Deferred income on maintenance contracts represents the
unsatisfied part of transaction price invoiced for maintenance
contracts. Typically this will be recognized as revenue within
the next 12 months from the end of the reporting period.
No material amounts of revenue were recognized during
the reporting period due to changes in transaction prices or
changes in estimates for performance obligations partially or
fully satisfied in previous years. There were no significant
impairment charges recognized during the reporting period for
the contract assets.
Customer credit risk management
Customer credit risks relate to advance payments receivable
from customers or to unbilled revenue and accounts
receivable related to equipment deliveries or to services
rendered. This risk is managed by defining the rules for
tendering, payment terms, authorizations and credit control as
well as project management controls. Advance payments,
documentary credits and guarantees are used in payment
terms to minimize customer credit risks. KONE proactively
manages its accounts receivable in order to minimize the risk
of customer defaults. KONE's customer base consists of a
large number of customers in several market areas and
geographic split of receivables and contract assets well
mirrors distribution of sales. During the reporting period KONE
Accounting principles
Accounts receivable
Accounts receivable are recognized when the right to
consideration becomes unconditional and are measured at
amortized cost. For KONE's new equipment and modernization
contracts, a receivable is typically recognized upon invoicing
when the goods are delivered and for KONE maintenance
contracts upon invoicing according to customer contract terms
and conditions.
KONE applies the expected credit loss model to assess
impairment loss for the doubtful accounts receivable since the
accounts receivable do not contain a significant financing
component. To measure the lifetime expected credit losses
trade receivables have been grouped based on shared credit
risk characteristics and aging category and measured based on
historical loss rates adjusted by forward looking estimates and
individual assessment. A final impairment loss is recognized
when receivership or bankruptcy is confirmed or when it is
otherwise obvious that the customer will be unable to meet its
payment obligations. Changes in impairment loss for doubtful
accounts receivable and final impairment losses are recognized
under cost and expenses in the consolidated statement of
income.
Unbilled contract revenue
Unbilled contract revenue relates to consideration for
performance obligations satisfied over time in KONE's new
equipment and modernization contracts. It is recognized when
the revenue recognized exceeds the amounts billed to the
customer and receipt of transaction price is considered to be
conditional upon factors other than the passage of time.
MEUR
Accounts receivable
Accrued income on maintenance contracts (note 3.3)
Unbilled contract revenue (note 3.3)
Assets related to contracts with customers
Deferred income on maintenance contracts (note 3.4)
Advance payments received and deferred revenue
Liabilities related to contracts with customers
Unbilled contract revenue is valued at net realizable value
and is classified as contract asset and presented under
deferred assets in the consolidated statement of financial
position.
An impairment loss for contract assets is estimated
based on lifetime expected credit loss model and individual
analysis.
Deferred and accrued income on maintenance
contracts
When revenue recognized exceeds the amounts billed to
the customer an accrued income on maintenance contracts
is recognized. It is stated at net realizable value and
classified as contract assets and presented under deferred
assets in the consolidated statement of financial position.
When the amounts billed to the customer exceed the
recognized revenue deferred income on maintenance
contracts is recognized. These balances are classified as
contract liabilities and are presented under accruals in the
consolidated statement of financial position.
Advance payments received and deferred revenue
Advance payments received and deferred revenue relates
to payments received in advance of performance or billing
in excess of revenue recognized under KONE's new
equipment and modernization contracts. Advance
payments received and deferred revenue are recognized
as revenue as (or when) KONE performs under the
contracts and are classified as contract liabilities.
Dec 31, 2022
2,668.1
36.6
365.1
Dec 31, 2021
2,421.4
35.1
344.6
3,069.8
2,801.1
452.2
462.7
1,973.8
2,426.0
1,957.0
2,419.8
60
KONE ANNUAL REVIEW 2022View entire presentation