Note 3
Income taxes
Impairment of non-current assets
Determining whether non-current assets are impaired requires an estimation of the recoverable amount of the asset (or cash-
generating unit), which is the higher of fair value less costs to sell and value in use. The value in use calculation requires
management to estimate the future cash flows expected to arise from the asset (or cash-generating unit) and an appropriate
discount rate, in order to calculate the present value of the expected future economic benefits of an asset (or cash-generating
unit). See Note 16 for specific information on the carrying amounts of goodwill, the cash-generating units affected and the
estimates and assumptions applied.
Pensions and other retirement benefits
The calculation of the defined benefit obligations and, in relation to that, net periodic benefit costs for the periods presented,
requires management to estimate, amongst others, future benefit levels and appropriate discount rates. Due to the long-term
nature of these plans such estimates are subject to considerable uncertainties and may require adjustments in future periods,
impacting future liabilities and expenses.
Claims and provisions
Ahold and its subsidiaries are parties to a number of legal proceedings arising out of their business operations. Such legal
proceedings are subject to inherent uncertainties. Management, where appropriate supported by internal and external legal
counsels, determines whether it is more likely than not that an outflow of resources will be required to settle an obligation. If
this is the case, the amount of the outflow of resources has to be estimated. If a reliable estimate can be made, a provision is
recognized for the best estimate of the expenditure required to settle the obligation.
Measurement of the claim provision for Ahold's self-insurance program requires significant estimates as well. These estimates
and assumptions include, but are not limited to, an estimate of claims incurred but not yet reported, historical loss experience,
projected loss development factors, estimated changes in claim reporting patterns, claim settlement patterns, judicial
decisions and legislation.
All the assumptions, anticipations, expectations and forecasts used as a basis for certain estimates within the consolidated
financial statements represent good-faith assessments of Ahold's future performance for which management believes there
is a reasonable basis. These estimates represent Ahold's view at the times they are made, and only then. They involve risks,
uncertainties and other factors that could cause the Company's actual future results, performance and achievements to differ
materially from those forecasted.
Vendor allowances
The accounting for vendor allowances requires a number of estimates. First, the Company must estimate the allowances that
are earned based on fulfillment of its related obligations, many of which require management to estimate the volume of
purchases that will be made during a period of time. Secondly, Ahold needs to estimate the amount of related product that was
sold to the customer and the amount that remains in ending inventories and accordingly allocate the allowance to cost of sales
or inventories. The Company makes this estimate based on the turnover of the inventories and allocates a portion of the related
vendor allowance to ending inventories until such product is estimated to be sold to customers.
The amounts posted for vendor allowances remain subject to estimates that may differ from actual outcomes. Ahold evaluates
its vendor allowance arrangements on a regular basis to assess the probability that relevant volume milestones will be achieved,
based on actual sales and purchase levels to date and expected sales or purchase levels for the remainder of the year.
Ahold is subject to income taxes in several jurisdictions. The Company has material tax loss carryforward positions, whereby
the realization of deferred tax assets will be largely dependent upon the availability of future taxable income, as estimated from
time to time by management. Significant judgment is required in determining the consolidated provision for income taxes and
the recoverable amounts of deferred tax assets related to tax loss carryforward positions. The ultimate tax effects of certain
transactions can be uncertain for a considerable period of time, requiring management to estimate the related current and
deferred tax provisions. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of such matters differs from the amounts that were initially recorded,
AHOLD ANNUAL REPORT 2005 103
