and contingent liabilities is recorded as goodwill. The
measurement of fair value of the acquired net assets
is based on market value of similar assets (property,
plant and equipment), or an estimate of expected cash
ows (intangible assets). The valuation, which is based
on prevailing repurchase value, expected cash ows or
estimated sales price, requires management judgement,
estimates and assumptions. See note 4.
Recognition of deferred taxes
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the
periods in which those temporary differences become
deductible or in which tax losses can be utilized. The tax
effect of unused tax losses is recognized as a deferred tax
asset when it becomes probable that the tax losses will
be utilized. In making assessments regarding deferred tax
assets, management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and
tax planning strategies. The actual current tax exposure is
estimated together with assessing temporary differences
resulting from differing treatment of items, such as
depreciation, provisions and accruals, for tax and accounting
purposes. When recording the deferred tax assets judgment
have been based on the estimates of the taxable income in
each subsidiary and country in which Konecranes operates,
and the period over which the deferred tax assets will be
recoverable based on the estimated future taxable income
and planned tax strategies to utilize these assets. The
amount of deferred tax assets considered realizable could
however be reduced in subsequent years if estimates of
future taxable income during their carry forward periods are
reduced, or rulings by the tax authorities are unfavourable.
Estimates are therefore subject to change due to both
market related and tax authorities related uncertainties, as
well as Konecranes’ own future decision matters such as
restructuring. Konecranes is unable to accurately quantify the
future adjustments to deferred income tax expense that may
occur as a result of these uncertainties. See note 17.
Actuarial assumptions in dened benet plans
The net pension liability and expense for dened benet
plans is based on various actuarial assumptions such as the
assumed discount rate, expected development of salaries and
pensions and mortality rates. Signicant differences between
assumptions and actual experience, or signicant changes in
assumptions, may materially affect the pension obligations.
The effects of actual results differing from assumptions and
the changing of assumptions are included in Remeasurement
gains/loss on dened benet plans in other comprehensive
income. Discount rates are determined annually based on
changes in long-term, high quality corporate bond yields.
Decreases in the discount rates results in an increase in the
dened benet obligation and in pension costs. Conversely,
an increase in the discount rate results in a decrease in the
dened benet obligation and in pension costs. Increases
and decreases in mortality rates have an inverse impact on
the dened benet obligation and pension costs. Increases
and decreases in salary and pension growth rates have a
direct correlating impact on the dened benet obligation and
pension costs.
The assumed discount rate, which is based on rates observed
at the end of the preceding nancial year may not be
indicative of actual rates realized. The actual development for
salaries and pensions may not reect the estimated future
development due to the uncertainty of the global economy
and various other factors. Konecranes uses generational
mortality tables to estimate probable future mortality
improvements. These tables assume that the trend of
increasing life expectancy will continue, resulting in pension
benet payments to younger members being likely to be paid
for longer time periods than older members’ pensions, given
that assumed retirement ages are those dened in the rules
of each plan.
The funded status, which can increase or decrease based
on the performance of the nancial markets or changes in
our assumptions, does not represent a mandatory short-
term cash obligation. Instead, the funded status of a dened
benet pension plan is the difference between the dened
benet obligation and the fair value of the plan assets.
See note 28.
Revenue recognition over time in long term projects
Konecranes applies the percentage of completion method
for recognizing revenue over time from certain long-term
large crane projects and modernizations in accordance with
IFRS 15 Revenue Recognition. The percentage of completion
is based on the cost-to-cost method. Under this method,
progress of contracts is measured by actual costs incurred
in relation to management’s best estimate of total estimated
costs at completion, which are reviewed and updated
routinely for contracts in progress. The cumulative effect of
any change in estimate is recorded in the period in which the
change in estimate is determined.
The percentage-of-completion method of accounting involves
the use of assumptions and projections, principally relating
to future material, labour and project-related overhead costs.
As a consequence, there is a risk that total contract costs
will exceed those originally estimated and the margin will
decrease, or the contract may become unprotable. This risk
increases as the duration of a contract increases because
there is a higher probability that the circumstances upon
the estimates were originally based will change, resulting
in increased costs that may not be recoverable. Factors
that could cause costs to increase include: unanticipated
technical problems with equipment supplied or developed by
us which may require us to incur additional costs to remedy,
changes in the cost of components, materials or labour,
project modications creating unanticipated costs, suppliers’
or subcontractors’ failure to perform, and delays caused by
unexpected conditions or events. By recognizing changes in
estimates cumulatively, recorded revenue and costs to date
reect the current estimates at the stage of completion for
each project. Additionally, losses on long-term contracts are
63 Financial Review 2020
Corporate Governance Corporate Governance Statement 2020 Remuneration Statement 2020 Risk Management Financial Review