Notes to the consolidated financial statements
3 Significant accounting policies continued
On the partial or complete disposal of an operation, the goodwill
attributable to that operation is included in the determination of
the gain or loss on disposal.
Investments in joint ventures and associates
A joint venture is a contractual arrangement whereby Ahold and
other parties undertake an economic activity through a jointly
controlled entity. Joint control exists when strategic financial
and operating policy decisions relating to the activities require
the unanimous consent of the parties sharing control. Associates
are entities over which Ahold has significant influence but not
control, generally accompanying a shareholding of between
20 percent and 50 percent of the voting rights. Significant
influence is the power to participate in the financial and
operating policy decisions of the entity but is not control
or joint control over those policies.
Impairment of non-current assets other than
goodwill
Inventories
31 www.ahold.com/reports2008
Financial statements
AHOLD ANNUAL REPORT 2008 I 54
Other intangible assets
Other intangible assets are stated at fair value determined at the
date of acquisition of the related underlying business, or at cost
if they are separately acquired or represent internally developed
software, less accumulated amortization and impairment losses.
Customer relationships acquired in business acquisitions
are stated at fair value determined using an income approach.
Direct costs related to development of software for internal
use are capitalized only if the costs can be measured reliably,
technological feasibility has been established, future economic
benefits are probable and the Company intends to complete
development and to use the software. All other costs, including
all overhead, general and administrative and training costs,
are expensed as incurred. Lease-related intangible assets,
consisting primarily of favorable operating lease contracts
acquired in business acquisitions, are measured at the present
value of the amount by which the contract terms are favorable
relative to market prices at the date of acquisition.
Amortization is computed using the straight-line method based
on the estimated useful lives, which are as follows:
Customer relationships 7-10 years
Software 3-10 years
Lease-related intangibles remaining duration of the lease
Other 5-indefinite
For software, lives in excess of six years are used only when
management is satisfied that the lives of these assets will clearly
exceed that period. The useful lives are reviewed, and adjusted
if appropriate, at each balance sheet date. Ahold assesses on
a quarterly basis whether there is any indication that other
intangible assets may be impaired.
Joint ventures and associates are accounted for using the equity
method. Under the equity method, investments in joint ventures
and associates are measured at cost as adjusted for post-
acquisition changes in Ahold's share of the net assets of the
investment (net of any accumulated impairment in the value of
individual investments). Where necessary, adjustments are made
to the financial statements of joint ventures and associates to
ensure consistency with the accounting policies of the Company.
Unrealized gains on transactions between Ahold and its joint
ventures and associates are eliminated to the extent of Ahold's
stake in these investments. Unrealized losses are also eliminated
unless the transaction provides evidence of an impairment of
the assets transferred.
Ahold assesses on a quarterly basis whether there is any
indication that non-current assets may be impaired. If indicators
of impairment exist, Ahold estimates the recoverable amount of
the asset. Where it is not possible to estimate the recoverable
amount of an individual asset, Ahold estimates the recoverable
amount of the cash-generating unit to which it belongs.
Individual stores are considered separate cash-generating units
for impairment testing purposes.
The recoverable amount is the higher of an asset's fair value less
cost to sell and its value in use. In assessing value in use, the
estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. An impairment loss is recognized in the consolidated
income statement for the amount by which the asset's carrying
amount exceeds its recoverable amount.
In subsequent years, Ahold assesses whether indications exist that
impairment losses previously recognized for non-current assets
other than goodwill may no longer exist or may have decreased.
If any such indication exists, the recoverable amount of that
asset is recalculated and its carrying amount is increased to the
revised recoverable amount, if required. The increase is recognized
in operating income as an impairment reversal. An impairment
reversal is recognized only if it arises from a change in the
assumptions that were used to calculate the recoverable amount.
The increase in an asset's carrying amount due to an impairment
reversal is limited to the depreciated amount that would have
been recognized had the original impairment not occurred.
Inventories are stated at cost or net realizable value, whichever
is lower. Cost consists of all costs of purchase, cost of
conversion and other costs incurred in bringing the inventories
to their present location and condition, net of vendor allowances