Note 3
Financial statements - Notes to the consolidated financial statements
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.
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 positions. The Company recognizes liabilities for
uncertain tax positions when it is more likely than not that
additional taxes will be due.
Non-current assets held for sale
and discontinued operations
Non-current assets and disposal groups are classified as
held for sale if their carrying amount will be recovered
through a sale transaction rather than through continuing
use. For this to be the case, the asset (or disposal group)
must be available for immediate sale in its present condition
and the sale must be highly probable. For the sale to be
highly probable, (i) the appropriate level of management
must be committed to a plan to sell the asset, (ii) an active
program to locate a buyer and complete the plan must have
been initiated, (iii) the asset must be actively marketed for
sale at a price that is reasonable in relation to its current
fair value, (iv) the sale should generally be expected to
qualify for recognition as a completed sale within one year
from the date of classification and (v) actions required to
complete the plan should indicate that it is unlikely that
significant changes to the plan will be made or that the plan
will be withdrawn.
Non-current assets (or disposal groups) classified as held for
sale are measured at the lower of the asset's carrying
amount and the fair value less costs to sell. Depreciation or
amortization of an asset ceases when it is classified as held
for sale, or included within a disposal group that is classified
as held for sale.
A discontinued operation is a component of the Company
that either has been disposed of, or that is classified as held
for sale, and: (i) represents a separate major line of business
or geographical area of operations or (ii) is part of a single
coordinated plan to dispose of a separate major line of
business or geographical area of operations. Results from
discontinued operations are presented separately as a single
amount in the consolidated statements of operations.
Results from operations qualifying as discontinued
operations as of the balance sheet date for the latest period
presented, that have previously been presented as results
from continuing operations, are re-presented as results from
discontinued operations for all periods presented.
Property, plant and equipment
Items of property, plant and equipment are stated at cost
less accumulated depreciation and impairment losses. Cost
includes expenditures that are directly attributable to the
acquisition or construction of an asset and may include
borrowing costs incurred during construction. Where
applicable, estimated asset retirement costs are added to
the cost of an asset. Subsequent expenditures are
capitalized only when it is probable that future economic
benefits associated with the item will flow to the Company
and the costs can be measured reliably. All other
subsequent expenditures represent repairs and
maintenance and are expensed as incurred.
Depreciation is computed using the straight-line method
based on the estimated useful lives of the items of property,
plant and equipment, taking into account the estimated
residual value. Where an item of property, plant and
equipment comprises major components having different
useful lives, each such part is depreciated separately. The
assets' useful lives are reviewed, and adjusted if appropriate,
at each year-end balance sheet date.
The estimated useful lives of property, plant and
equipment are:
Land indefinite
Buildings 30 - 40 years
Building components 7 - 20 years
Machinery and equipment 5 - 12 years
Other 3 - 10 years
Depreciation of assets subject to finance leases and
leasehold improvements is calculated on a straight-line
basis over either the lease term (including renewal periods
when renewal is reasonably assured) or the estimated useful
life of the asset, whichever is shorter.
Investment property
Investment property consists of land and buildings held by
Ahold to earn rental income or for capital appreciation, or
both. These properties are not used by Ahold in the ordinary
course of business. Ahold recognizes the part of an owned
(or finance leased) shopping center that is leased to third-
party retailers as investment property, unless it represents an
insignificant portion of the property. Land and buildings
leased to franchisees are not considered to be investment
property as they contribute directly to Ahold's retail
operations. The measurement of investment property is
similar to property, plant and equipment.
Leases and sale and leaseback transactions
Leases
Ahold is the lessee of buildings and equipment under
operating and finance lease arrangements. Ahold classifies
its leases as finance leases when the lease agreement
transfers substantially all the risks and rewards of ownership
to Ahold. For leases determined to be finance leases the
asset and liability are recognized at an amount equal either
to the fair value of the leased asset or the present value of the
minimum lease payments during the lease term, whichever
is lower.
Leases that do not qualify as finance leases are classified as
operating leases, and the related lease payments are
expensed on a straight-line basis over the lease term,
including, as applicable, any rent-free period during which
Ahold has the right to use the asset. For leases with renewal
options where the renewal is reasonably assured, the lease
term used to (i) determine the appropriate lease
classification, (ii) compute periodic rental expense and
(iii) depreciate leasehold improvements (unless their
economic lives are shorter) includes the periods of expected
64 Ahold Annual Report 2006
