Financial statements - Notes to the consolidated financial statements
Note 3
Cumulative preferred financing shares
Net sales
Cost of sales
Vendor allowances
Cumulative preferred financing shares, for which dividend payments are not at the discretion of the Company, are classified as
non-current liabilities. The dividends on these cumulative preferred financing shares are recognized as interest expense in the
consolidated statements of operations.
Ahold generates and recognizes net sales to retail customers at the point of sale in its stores and upon delivery of groceries to
Internet customers. Ahold also generates revenues from the sale of products to foodservice customers and retail franchisees,
which are recognized upon delivery.
Ahold recognizes franchise fees (with an appropriate provision for estimated uncollectible accounts) as revenue when all
material services relating to the contract have been substantially performed.
Discounts, earned by customers through agreements or by using their bonus or loyalty cards, are recorded by the Company
as a reduction of the sales price at the time of the sale.
Generally, net sales and cost of sales are recorded on a gross basis, based on the gross amount of the products sold to the
customer and the amount paid for the products to the vendor. However, for certain products or services, such as the sales
of lottery tickets, third-party prepaid phone cards, stamps and public transportation tickets, Ahold acts as an agent and
consequently records the amount of the net margin in its net sales. Net sales exclude sales taxes and value added taxes.
Cost of sales include the purchase price of the products sold and other costs incurred in bringing the inventories to the
location and condition ready for sale. These costs include costs of purchasing, storing, rent, depreciation of property, plant
and equipment, salaries and transporting the products to the extent it relates to bringing the inventories to the location and
condition ready for sale. Vendor allowances are generally deducted from cost of sales when the products to which the vendor
allowances relate are sold.
Ahold receives various types of vendor allowances. These take the form of up-front payments such as lump sum payments
or prepaid amounts, rebates, in the form of cash or credits, and other forms of payments. Ahold treats the allowances received
from vendors as a reduction in the price paid for the product, unless there is clear evidence that it should be classified as
revenue or a reimbursement of costs. Ahold recognizes vendor allowances only where there is evidence of a binding
arrangement with the vendor and receipt is both probable and estimable. Any allowances relating to products that are still
in ending inventories are deferred until the related product is sold.
Arrangements with vendors are principally evidenced by written contracts. In the absence of written contracts, the other
documentation evidencing an arrangement are: documentation received from vendors, including end-of-period settlement
statements; vendor presentation materials; term sheets; and e-mails or other forms of documentation that specify the terms
and conditions of the vendor allowance receivable. The Company only considers these forms of documentation binding when
they are consistent with historical business practices with a vendor and when settlement has occurred or is reasonably assured.
The most common allowances vendors offer are (i) volume allowances, which are off-invoice or amounts billed back to vendors
based on the quantity of products sold to customers or purchased from the vendor and (ii) promotional allowances, which relate
to cooperative advertising and market development efforts. The timing of recognition depends on the facts and circumstances
as described below for the various types of arrangements.
Slotting and stocking allowances that vendors pay in return for introducing their new products in a store, up-front payments by
vendors and rebates received relating to volume of products purchased are all volume allowances recognized on a systematic
basis as a reduction of the purchase price of the related products as they are sold. If these volume allowances are contingent
on achieving certain minimum volume targets the allowances are recognized only to the extent it is probable that the minimum
volume targets will be achieved and the amount of the allowance can be reasonably estimated.
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