2 www.ahold.com/reports2008
Notes to the consolidated financial statements
3 Significant accounting policies continued
Vendor allowances
Selling expenses
General and administrative expenses
General and administrative expenses consist of salaries and
wages of support office employees, rent and depreciation of
support offices, impairment losses and reversals, amortization
charges of non-current assets, 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
Income taxes
Financial statements
AHOLD ANNUAL REPORT 2008 I 51
Ahold receives various types of vendor allowances. The most
common allowances vendors offer are (i) volume allowances,
which are off-invoice or amounts billed back to vendors based
on the quantity of products sold to customers or purchased
from the vendor and (ii) promotional allowances, which relate to
cooperative advertising and market development efforts. Volume
allowances are recognized as a reduction of the cost of the
related products as they are sold. Promotional allowances are
recognized as a reduction of the cost of the related products
when the Company has performed the activities specified in the
contract with the vendor. If the contract does not specify any
performance criteria the allowance is recognized over the term
of the contract. Vendor allowances are generally deducted from
cost of sales, unless there is clear evidence that they should
be classified as revenue or a reimbursement of costs. Ahold
recognizes vendor allowances only where there is evidence
of a binding arrangement with the vendor, the amount can
be estimated reliably and receipt is probable.
The accounting for vendor allowances requires a number of
estimates. First, the Company must estimate the allowances
that are earned based on 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 be sold to customers.
Selling expenses consist of salaries and wages of store
employees, store expenses, rent or depreciation of stores,
advertising costs and other selling expenses.
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 options or 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 consolidated 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 asset to be recovered.
Deferred tax assets and liabilities are not discounted. Deferred
income tax assets and liabilities are offset in the consolidated
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 in the consolidated 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.
