3 Contract assets

Contract assets increased from EUR 1.8 billion as of December 31, 2018 to EUR 1.9 billion as of December 31, 2019.

Contract assets have arisen from the application of IFRS 15 since the 2018 financial year and relate to receivables that have not yet legally come into existence, which arise from the earlier – as compared to billing – recognition of revenue, in particular from the sale of goods and merchandise under long-term multiple-element arrangements (e.g., mobile contract plus handset). Receivables from long-term construction contracts are also recognized under contract assets. Of the total contract assets, EUR 0.1 billion related to contract assets in connection with long-term construction contracts.

Contract assets increased by EUR 80 million in the reporting year, due to a change in the business model in Poland in September 2018. Whereas the previous business model did not provide for handsets to be sold at a discount, the terminal equipment business is now subsidized.

For information on allowances on contract assets, please refer to Note 41 “Financial instruments and risk management.”