Note 3
Financial statements - Notes to the consolidated financial statements
Ahold assesses on a quarterly basis whether there is any
indication that other intangible assets may be impaired.
Regardless of the existence of impairment indicators, brand
names are tested for impairment at least annually.
Investments in joint ventures and associates
A joint venture is a contractual arrangement whereby Ahold
and other parties undertake an economic activity that is
subject to joint control. Joint control exists when strategic
financial and operating policy decisions relating to the
activities require the unanimous consent of the parties
sharing control. Associates are entities over which Ahold has
significant influence but not control, generally
accompanying a shareholding of between 20 percent and
50 percent of the voting rights. Significant influence is the
power to participate in the financial and operating policy
decisions of the entity but is not control or joint control over
those policies.
Joint ventures and associates are accounted for using the
equity method. Under the equity method, investments in
joint ventures and associates are measured at cost as
adjusted for post-acquisition changes in Ahold's share of the
net assets of the investment (net of any accumulated
impairment in the value of individual investments). Where
necessary, adjustments are made to the financial statements
of joint ventures and associates to ensure consistency with
the accounting policies of the Company.
Unrealized gains on transactions between Ahold and its joint
ventures and associates are eliminated to the extent of
Ahold's stake in these investments. Unrealized losses are
also eliminated unless the transaction provides evidence of
an i mpairment of the assets transferred.
Impairment of non-current assets other than goodwill
Ahold assesses on a quarterly basis whether there is any
indication that non-current assets may be impaired. If
indicators of impairment exist, Ahold estimates the
recoverable amount of the asset. Where it is not possible to
estimate the recoverable amount of an individual asset,
Ahold estimates the recoverable amount of the cash-
generating unit to which it belongs. Individual stores are
considered separate cash-generating units for impairment
testing purposes.
The recoverable amount is the higher of an asset's fair value
less cost to sell and its value in use. In assessing value in
use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and
the risks specific to the asset. An impairment loss is
recognized in the consolidated statements of operations for
the amount by which the asset's (or cash-generating unit's)
carrying amount exceeds its recoverable amount.
In subsequent years, Ahold assesses whether indications
exist that impairment losses previously recognized for non-
current assets other than goodwill may no longer exist or
may have decreased. If any such indication exists, the
recoverable amount of that asset (or cash generating unit) is
recalculated and its carrying amount is increased to the
revised recoverable amount. The increase is recognized in
operating income. A reversal is recognized only if it arises
from a change in the assumptions used to calculate the
recoverable amount. The increase in an asset's (or cash-
generating unit's) carrying amount due to an impairment
reversal is limited to the depreciated amount that would have
been recognized had the original impairment not occurred.
Inventories
Inventories are stated at cost or net realizable value,
whichever is lower. Cost consists of all costs of purchase,
cost of conversion and other costs incurred in bringing the
inventories to their present location and condition, net of
vendor allowances attributable to inventories. For certain
inventories, cost is measured using the retail method,
whereby the sales value of the inventories is reduced by the
appropriate percentage gross margin. The cost of inventories
is determined using either the first-in, first-out ("FIFO")
method or the weighted average cost method, depending on
their nature or use. Net realizable value is the estimated
selling price in the ordinary course of business, less the
estimated marketing, distribution and selling expenses.
Financial instruments
Financial assets and liabilities
Financial assets and liabilities are recognized when the
Company becomes a party to the contractual provisions of
the instrument. Financial assets are derecognized when the
rights to receive cash flows from the financial assets expire
or if the Company transfers the financial asset to another
party without retaining control or substantially all risks and
rewards of the asset. Financial liabilities are derecognized
when the Company's obligations specified in the contract
expire or are discharged or cancelled. Regular way
purchases and sales of financial assets are accounted for at
settlement date, i.e., the date that the asset is delivered to or
by the Company.
At initial recognition, management classifies its financial
assets as (i) at fair value through profit or loss, (ii) loans and
receivables or (iii) available for sale, depending on the
purpose for which the financial assets were acquired.
Financial assets are initially recognized at fair value. For
instruments not classified as at fair value through profit or
loss, any directly attributable transaction costs are initially
recognized as part of the asset. Directly attributable
transaction costs related to financial assets at fair value
through profit or loss are expensed when incurred.
Subsequent to initial recognition, financial assets are
measured as described below.
The fair value of quoted investments are based on current
bid prices. If the market for a financial asset is not active or if
the financial asset represents an unlisted security, the
Company establishes fair value using valuation techniques.
These include the use of recent arm's length transactions,
reference to other instruments that are substantially the
same and discounted cash flow analysis, making maximum
use of market inputs. At each balance sheet date, the
Company assesses whether there is objective evidence that
a financial asset or a group of financial assets is impaired.
66 Ahold Annual Report 2006
