Note 3
Net sales
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 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
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
Ahold receives various types of vendor allowances.
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. Volume allowances are
recognized as a reduction of the cost of the related products
as they are sold. Promotional allowances are recognized
as a reduction of the cost of the related products when the
activities specified in the contract are performed by the
Company for the vendor. If the contract does not specify any
performance criteria the allowance is recognized over the
term of the contract. Vendor allowances are generally
deducted from cost of sales, unless there is clear evidence
that they 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.
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.
Second, the Company needs to estimate the amount of
related product that was sold and the amount that remains
in ending inventories and accordingly allocate the allowance
to cost of sales or inventories. Management 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.
Selling expenses
Selling expenses consist of salaries and wages of retail and
foodservice employees, store expenses, rent or depreciation
of stores and foodservice facilities, advertising costs and
other selling expenses.
General and administrative expenses
General and administrative expenses consist of salaries
and wages of support office employees, rent and
depreciation of support offices, impairment and amortization
charges of non-current assets, gains and losses on the
sale of non-current assets and disposal groups held for
sale, restructuring costs and other general and
administrative expenses.
Share-based compensation
The grant date fair value of share-based compensation plans
is expensed, with a corresponding increase in equity, on
a straight-line basis over the vesting periods of the grants,
based on estimates of the number of options or shares that
will eventually vest. These estimates relate to non-market
vesting conditions (e.g., staff turnover) and are revised at
each balance sheet date. The impact of the revision of
original estimates, if any, is recognized in the consolidated
statements of operations, and a corresponding adjustment
to equity.
Income taxes
Income tax expense represents the sum of current and
deferred tax. Income tax is recognized in the consolidated
statements of operations except to the extent that it relates
to items recognized directly in equity, in which case it is
recognized in equity. Current tax expense is based on the
best estimate of taxable income for the year, using tax rates
that have been enacted or substantively enacted at the
balance sheet date, and adjustments for current taxes
payable (receivable) for prior years. Deferred tax is the tax
expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities and
the corresponding tax basis used in the computation of
taxable income. Deferred tax assets and liabilities are
generally recognized for all taxable temporary differences,
except to the extent that a deferred tax liability arises from
the initial recognition of goodwill. 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 assets, including deferred tax assets for tax loss
carryforward positions and tax credit carryforward positions,
are recognized to the extent that it is probable that future
taxable income will be available against which deductible
temporary differences can be utilized and deferred tax
assets realized. The recoverable amount of deferred tax
assets is reviewed at each 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.
Ahold Annual Report 2006 63
