Financial statements - Notes to the consolidated financial statements
Note 3
Derivative financial instruments
Consolidated statements of cash flows
Critical accounting estimates and judgments
Accounting estimates and assumptions
balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to
allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
is realized. Deferred tax is charged or credited in the consolidated statements of operations, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is charged or credited to equity rather than to income.
Deferred tax assets and liabilities are not discounted.
Deferred income tax assets and liabilities are offset in the consolidated balance sheets when there is a legally enforceable right
to offset current tax assets against current tax liabilities and when the deferred income taxes are levied by the same fiscal
authority.
All derivatives are initially recognized at fair value on a settlement date basis and subsequently remeasured at their fair value.
The method of recognizing the resulting gain or loss depends on whether the derivative qualifies as a hedging instrument, and
if so, the nature of the item being hedged. In order for a derivative financial instrument to qualify as a hedging instrument for
accounting purposes, the instrument must be highly effective in offsetting changes in fair values of the hedged balance sheet
item or hedged future cash flow and hedge documentation requirements must be fulfilled. Derivatives that qualify for hedge
accounting treatment are treated as either cash flow hedges or fair value hedges.
To the extent that cash flow hedging instruments are highly effective in offsetting the hedged risk, the fair value changes of the
instruments are included in the cash flow hedging reserve (a separate component in group equity) and reclassified directly into
the statement of operations in the same period in which the related exposure impacts the statement of operations. With respect
to cash flow hedging instruments that are not highly effective in offsetting the hedged risk, fair value changes are recognized
as gain (loss) on foreign exchange in the statement of operations in the period in which they arise. When a cash flow hedge no
longer meets the criteria for hedge accounting, any cumulative gain or loss existing in group equity at that time remains in
group equity and is recognized when the forecasted transaction is ultimately recognized in the statement of operations. When
a forecasted transaction is no longer expected to occur, the cumulative gain or loss existing in group equity is immediately
transferred to the statement of operations.
Fair value changes of derivative instruments that qualify for fair value hedge accounting treatment are recognized in full in
the statement of operations in the period in which they arise, together with any changes in fair value of the hedged asset or
liability in the fair value hedge relationship. If the hedging instrument no longer meets the criteria for hedge accounting, the
adjustment to the carrying amount of the hedged item is amortized in the statements of operations over the remaining period
to maturity of the hedged item.
Fair value changes of derivative instruments that do not qualify for hedge accounting treatment and ineffective portions of
derivatives that qualify for hedge accounting are recognized in the consolidated statements of operations in the period in which
they arise.
The consolidated statements of cash flows are presented using the indirect method. The changes in assets and liabilities of
subsidiaries and associates with functional currencies other than the euro are translated per quarter using an average exchange
rate.
The preparation of Ahold's consolidated financial statements requires management to make a number of estimates and
assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, of revenues and expenses
and the disclosure of contingent assets and liabilities. Estimates and assumptions may differ from future actual results. The
estimates and assumptions that management considers most critical and that have a significant inherent risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed hereinafter.
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