3 Contract assets
The carrying amount of contract assets stood at EUR 2.4 billion as of December 31, 2022, up EUR 0.4 billion against the prior-year level. 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 0.3 billion related to contract assets in connection with long-term construction contracts (December 31, 2021: EUR 0.2 billion).
In connection with the increased marketing of the Equipment Installment Plan in the United States operating segment, contract assets increased by EUR 235 million. Under this plan, discounts are granted on the purchase of a handset on the condition of a minimum service contract term. By contrast, contract assets were reduced by EUR 40 million in the reporting year (2021: EUR 51 million) due to a change in the business model in Poland from subsidized terminal equipment business to a business model that does not provide for handsets to be sold at a discount. In the Germany operating segment, the carrying amounts increased by EUR 0.1 billion.
For information on allowances of contract assets, please refer to Note 42 “Financial instruments and risk management.”