3 Significant accounting policies continued
Provisions
Ahold
Annual Report 2010
Group at a glance
Performance
Governance
Financials
Notes to the consolidated financial statements continued
Equity
Equity instruments issued by the Company are recorded at the
value of proceeds received. Own equity instruments that are
bought back (treasury shares) are deducted from equity.
Incremental costs that are directly attributable to issuing or buying
back own equity instruments are recognized directly in equity, net
of the related tax. No gain or loss is recognized in the income
statement on the purchase, sale, issue or cancellation of the
Company's own equity instruments.
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 income statement, using the
effective interest method. From the date when Ahold receives
irrevocable notification from a holder of cumulative preferred
financing shares to convert these shares into common shares, the
cumulative preferred financing shares are classified as a separate
class of equity.
Pension and other post-employment benefits
The net assets and net liabilities recognized on the consolidated
balance sheet for defined benefit plans represent the present value
of the defined benefit obligations, less the fair value of plan assets,
adjusted for unrecognized actuarial gains or losses and
unamortized past service costs. Any net asset resulting from this
calculation is limited to unrecognized actuarial losses and past
service cost, plus the present value of available refunds and
reductions in future contributions to the plan. No adjustment for the
time value of money is made if the Company has an unconditional
right to a refund of the full amount of the surplus, even if such a
refund is realizable only at a future date.
Defined benefit obligations are actuarially calculated at least
annually on the balance sheet date using the projected unit credit
method. The present value of the defined benefit obligations is
determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds denominated in the
currency in which the benefits will be paid, and that have an
average duration similar to the expected duration of the related
pension liabilities. Actuarial gains and losses are recognized using
the corridor approach, which assumes that actuarial gains and
losses may offset each other over the long term. Under this
approach, if, for a specific plan, the net unrecognized actuarial
gains and losses at the balance sheet date exceed the greater of
10 percent of the fair value of the plan assets and 10 percent of the
defined benefit obligation, the excess is taken into account in
determining net periodic expense for the subsequent period. The
amount then recognized in the subsequent period is the excess
divided by the expected remaining average working lives of
employees covered by that plan on the balance sheet date.
Past service costs are recognized immediately to the extent that the
associated benefits are already vested, and are otherwise
amortized on a straight-line basis over the average period until the
associated benefits become vested. Results from curtailments or
settlements, including the related portion of net unrecognized
actuarial gains and losses, are recognized immediately.
Contributions to defined contribution plans are recognized as an
expense when they are due. Post-employment benefits provided
through industry multi-employer plans, managed by third parties,
are generally accounted for under defined contribution criteria.
For other long-term employee benefits, such as long-service
awards, provisions are recognized on the basis of discount rates
and other estimates that are consistent with the estimates used for
the defined benefit obligations. For these provisions the corridor
approach is not applied and all actuarial gains and losses are
recognized in the income statement immediately.
Provisions are recognized when (i) the Company has a present
(legal or constructive) obligation as a result of past events, (ii) it is
more likely than not that an outflow of resources will be required to
settle the obligation, and (iii) the amount can be reliably estimated.
The amount recognized is the best estimate of the expenditure
required to settle the obligation. Provisions are discounted
whenever the effect of the time value of money is significant.
The provision for the Company's self-insurance program is
recorded based on claims filed and an estimate of claims incurred
but not yet reported. The provision includes expenses incurred in
the claim settlement process that can be directly associated with
specific claims. Other expenses incurred in the claim settlement
process are expensed when incurred. The Company's estimate
of the required liability of such claims is recorded on a discounted
basis, utilizing an actuarial method, which is based upon various
assumptions that include, but are not limited to, historical loss
experience, projected loss development factors, and actual
payroll costs.
Restructuring provisions are recognized when the Company has
approved a detailed formal restructuring plan, and the restructuring
either has commenced or has been announced to those affected
by it. Onerous contract provisions are measured at the amount by
which the unavoidable costs to fulfill agreements exceeds the
expected benefits from such agreements.
New accounting policies not yet effective for 2010
The IASB issued several Standards, or revisions thereto, and
Interpretations in 2010 and 2009 that have been endorsed by the
European Union, but which are not yet effective for 2010. The
Company does not expect that these will have a significant impact
on its financial statements.
