70 Dialog Semiconductor Plc | Annual report and accounts 2012  |  Section 4 | Consolidated financial statements and notes Notes to the consolidated financial statements 2. Summary of significant accounting policies continued Revenue recognition  For the year ended 31 December 2012  Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.  Revenue is measured at the fair value of the consideration received or receivable, excluding discounts, rebates, and other sales taxes or duty. The Group  assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is  acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised:  Revenue from the sale of goods is derived from the sale of products, application specific integrated circuit (“ASIC”) and application specific standard  product (“ASSP”) to end customers. These products are manufactured and tested in accordance with customers’ technical specifications prior to delivery. Revenue is recognised when title passes, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable, and  collection of the related receivable is probable. Revenues are recorded net of sales taxes and customer discounts, if any.  The Group has insurance for product claims and also records a provision for warranty costs as a charge in cost of sales, based on historical trends of  warranty costs incurred as a percentage of sales, which management has determined to be a reasonable estimate of the probable costs to be incurred  for warranty claims in a period. Customer returns are permitted only for quality-related reasons within the applicable warranty period and any potential warranty claims are subject to  the Group’s determination that it is at fault for damages. Such claims must usually be submitted within a short period of the date of sale.  Revenue from customer-specific research and development contracts involving the development of new customer-specific technology is recognised on  the percentage of completion basis when the outcome of the contract can be estimated reliably. A contract’s outcome can be estimated reliably when  total contract revenue can equally be estimated, it is probable that economic benefits associated with the contract will flow to the Group, and the stage  of contract completion can be measured reliably. When the Group is not able to meet those conditions, the policy is to recognise revenues only to the  extent the expenses incurred are eligible to be recovered. Completion is measured by reference to costs incurred to date as a percentage of estimated  total project costs. The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as the dependable  measurement of the progress made towards completing the particular project. Losses on projects in progress are recognised in the period they become  likely and can be estimated.  Sale of goods  Research and development  Government grants  Cost of sales  Sales and marketing expenses  General and administrative expenses  Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with.  When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs  that it is intended to compensate. Grants are deducted in reporting the related expense. Cost of sales consists of the costs of outsourced production, assembly and test, personnel costs and applicable overheads and depreciation of  equipment. Provisions for estimated product warranties are recorded in cost of sales at the time the related sale is recognised.  Sales and marketing expenses consist primarily of salaries, travel expenses, sales commissions, bad debt expenses and costs associated with advertising  and other marketing activities.  General and administrative expenses consist primarily of personnel and support costs for finance, human resources, ERP system and other management  departments which are not attributable to development, production or sales functions.