Note 3
Investments at fair value through profit or loss
Investments at fair value through profit or loss are those
investments that are held for trading. A financial asset is
classified in this category if it is acquired principally for the
purpose of selling in the short-term. Derivatives are classified
as held for trading unless they are designated as hedges.
Financial instruments held for trading are measured at fair
value and changes therein are recognized in the
consolidated statements of operations.
Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are carried at amortized cost using
the effective interest method, less any impairment losses.
They are included in current assets, except for loans and
receivables with maturities greater than 12 months after the
balance sheet date.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative
financial assets that are either designated in this category or
not classified in any of the other categories. They are
measured at fair value based on quoted market prices and
are included in non-current assets unless management
intends to dispose of the investment within 12 months after
the balance sheet date.
Loans and short-term borrowings
Loans and short-term borrowings are recognized initially at
fair value, net of transaction costs incurred. Loans and short
term borrowings are subsequently stated at amortized cost,
unless they are designated as fair value hedges. Any
difference between the proceeds and redemption value is
recognized in the consolidated statements of operations over
the period of the loans and short-term borrowings using the
effective interest method. Loans are classified as current
liabilities unless the Company has an unconditional right to
defer settlement of the liability for at least 12 months after
the balance sheet date.
Derivative financial instruments
All derivative financial instruments are recognized initially
on a settlement date basis and subsequently remeasured
at fair value. Gains and losses resulting from the fair value
remeasurement are recognized in the consolidated
statement of operations as fair value gains (losses) on
financial instruments, unless the derivative qualifies and is
effective as a hedging instrument in a designated hedging
relationship. In order for a derivative financial instrument to
qualify as a hedging instrument for accounting purposes,
the Company must document (i) its assessment, both at
hedge inception and on an ongoing basis, of whether the
derivative that is used in the hedging transaction is highly
effective in offsetting changes in fair values or cash flows of
hedged items and (ii) at the inception of the transaction,
the relationship between the hedging instrument and the
hedged item, as well as its risk management objectives and
strategy for undertaking various hedging transactions.
Derivatives that are designated as hedges are accounted
for as either cash flow hedges or fair value hedges.
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow
hedges are recognized initially in the cash flow hedging
reserve, a separate component of group equity. The gain
or loss relating to the ineffective portion is recognized
immediately in the consolidated statement of operations.
Amounts accumulated in equity are reclassified into the
consolidated statement of operations in the same period in
which the related exposure impacts the consolidated
statement of operations. 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 recognized in the consolidated statements
of operations.
Fair value changes of derivative instruments that qualify for
fair value hedge accounting treatment are recognized for the
hedged risk in the consolidated statement of operations in
the periods in which they arise, together with any changes in
fair value of the hedged asset or liability. 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 consolidated statements of
operations over the remaining period to maturity of the
hedged item.
Equity
Equity instruments issued by the Company are recorded at
the proceeds received. Incremental costs that are directly
attributable to issuing or buying back own equity instruments
are recognized directly in equity, net of the related tax.
Cumulative preferred financing shares
Cumulative preferred financing shares for which dividend
payments are not at the discretion of the Company are
classified as non-current financial liabilities and are stated at
amortized cost. The dividends on these cumulative preferred
financing shares are recognized as interest expense in the
consolidated statements of operations, using the effective
interest method. From the date that Ahold receives
irrevocable notification from a holder of preferred financing
shares to convert these shares into common shares, the
preferred financing shares are classified as a separate class
of equity.
Ahold Annual Report 2006 67
