3 Contract assets

Contract assets increased from EUR 1.9 billion in the prior year to EUR 2.0 billion as of December 31, 2020 primarily due to the change in the composition of the Group in connection with the business combination of T‑Mobile US and Sprint.

Contract assets 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 (December 31, 2019: EUR 0.1 billion).

No significant adjustments were made to contract assets in the reporting year as a result of contractual amendments. Contract assets increased by EUR 80 million in the prior year, due to a change in the business model in Poland in September 2018: whereas the previous business model did not provide for devices to be sold at a discount, the terminal equipment business has been subsidized since then.

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