Notes to the consolidated financial statements
3 Significant accounting policies continued
Consolidation
Foreign currency translation
Segmentation
Net sales
Cost of sales
31 www.ahold.com/reports2008
Financial statements
AHOLD ANNUAL REPORT 2008 50
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries. Subsidiaries
are entities over which the Company has control. Control is the
power to govern the financial and operating policies, generally
accompanying a shareholding of more than one-half of the
voting rights. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered
when assessing whether the Company controls another entity.
Subsidiaries are fully consolidated from the date that control
commences until the date that control ceases. All intra-group
transactions, balances, income and expenses are eliminated
upon consolidation. Unrealized losses on intra-group
transactions are eliminated unless the transaction provides
evidence of an impairment of the assets transferred.
Non-controlling interests are recorded in the consolidated
balance sheet and the consolidated income statement for
the non-controlling shareholders' share in the net assets and
the income or loss of subsidiaries, respectively. The interest
of non-controlling shareholders in an acquired subsidiary is
initially measured at the non-controlling interest's proportion
of the net fair value of the assets, liabilities and contingent
liabilities recognized.
The financial statements of each subsidiary are prepared in its
functional currency, which is determined based on the primary
economic environment in which such a subsidiary operates.
Transactions in currencies other than the functional currency
are recorded at the rates of exchange prevailing at the transaction
dates. At each balance sheet date, monetary items denominated
in foreign currencies are translated into the entity's functional
currency at the then prevailing rates. Exchange differences
arising on the settlement of monetary items, and on the
translation of monetary items, are included in net income
for the period. Goodwill and fair value adjustments arising
on the acquisition of a foreign entity are considered as assets
and liabilities denominated in the functional currency
of the foreign entity.
Upon consolidation, the assets and liabilities of subsidiaries
with a functional currency other than the euro are translated
into euros using exchange rates prevailing at the balance sheet
date. Income and expense items are translated at the average
exchange rates for the respective periods. Exchange rate
differences arising on consolidation are included in group
equity, in the currency translation reserve. Intercompany
loans to and from foreign entities for which settlement is
neither planned nor likely to occur in the foreseeable future
are considered to increase or decrease the net investment in
that foreign entity and the exchange rate differences relating
to these loans are therefore also included in group equity,
in the currency translation reserve. On the disposal of a foreign
operation, in part or in full, the related cumulative exchange
rate difference that was included in group equity, is transferred
to the consolidated income statement.
Ahold's operating segments are its retail operating companies
that engage in business activities from which they earn revenues
and incur expenses, and whose operating results are regularly
reviewed by the Corporate Executive Board to make decisions
about resources to be allocated to the segment and to assess its
performance. In establishing the reportable segments, certain
operating segments have been aggregated as they have similar
economic characteristics.
Performance of the segments is evaluated against several
measures, of which operating income is the most important.
Intersegment sales are executed under normal commercial
terms and conditions that would also be available to unrelated
third parties. Net sales are attributed to geographical regions
based on the location of stores.
Ahold generates and recognizes net sales to retail customers at
the point of sale in its stores and upon delivery of groceries to
internet customers. Ahold also generates revenues from the sale
of products to retail franchisees, which are recognized upon
delivery. Ahold recognizes franchise fees as revenue when all
material services relating to the contract have been substantially
performed. Discounts earned by customers, including those
provided in connection with bonus or loyalty cards, are
recognized as a reduction of sales at the time of the sale.
Generally, net sales and cost of sales are recorded based on the
gross amount received from the customer for products sold and
the amount paid to the vendor for products purchased. However,
for certain products or services, such as the sale of lottery
tickets, third-party prepaid phone cards, stamps and public
transportation tickets, Ahold acts as an agent and consequently
records the amount of commission income in its net sales.
Net sales exclude sales taxes and value-added taxes.
Cost of sales includes the purchase price of the products sold
and other costs incurred in bringing the inventories to the
location and condition ready for sale. These costs include costs
of purchasing, storing, rent, depreciation of property, plant and
equipment, salaries and transporting products to the extent it
relates to bringing the inventories to the location and condition
ready for sale.
