3 Significant accounting policies continued
Income taxes
Ahold
Annual Report 2010
Group at a glance
Performance
Governance
Financials
Notes to the consolidated financial statements continued
The accounting for vendor allowances requires a number of
estimates. First, the Company must estimate the allowances that
are earned based on the 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 have been sold to
customers.
Selling expenses
Selling expenses consist of store employees' salaries and wages,
store expenses, rent income and rent expense or depreciation
related to stores, advertising costs, and other selling expenses.
General and administrative expenses
General and administrative expenses consist of support office
employees' salaries and wages, rent and depreciation of support
offices, impairment losses and reversals, 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. The cumulative
expense recognized at each balance sheet date reflects the extent
to which the vesting period has expired and the Company's best
estimate of the number of shares that will eventually vest. No
expense is recognized for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition (e.g. total shareholder return). Those are treated as
vested irrespective of whether or not the market condition is
ultimately satisfied, provided that all non-market conditions (e.g.
continued employment) are satisfied.
Income tax expense represents the sum of current and deferred
tax. Income tax is recognized in the income statement except to the
extent that it relates to items recognized directly 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 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 temporary differences,
unused tax losses or unused tax credits can be utilized. The
carrying 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 assets to be recovered.
Deferred tax assets and liabilities are not discounted. Deferred
income tax assets and liabilities are offset on the balance sheet
when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes
relate to income taxes levied by the same fiscal authority. Current
income tax assets and liabilities are offset on the balance sheet
when there is a legally enforceable right to offset and when the
Company intends either to settle on a net basis, or to realize the
asset and settle the liability simultaneously.
The ultimate tax effects of some 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. These liabilities are
presented as current income taxes payable, except in jurisdictions
where prior tax losses are being carried forward to be used to offset
future taxes that will be due; in these instances the liabilities are
presented as a reduction to deferred tax assets.
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 its sale must be highly probable.
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. Equity accounting
ceases for an investment in a joint venture or associate when it is
classified as held for sale; instead dividends received are
recognized in the consolidated income statement.
