Notes to the consolidated financial statements
3 Significant accounting policies continued
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges are
recognized initially in the cash flow hedging reserve, a separate
component of group equity. The gain or loss relating to the
ineffective portion is recognized immediately in the consolidated
income statement. Amounts accumulated in equity are
reclassified into the consolidated income statement in the same
period in which the related exposure impacts the consolidated
income statement. When a cash flow hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss
existing in group equity at that time remains in group equity
and is recognized when the forecasted transaction is ultimately
recognized in the consolidated income statement. When a
forecasted transaction is no longer expected to occur, the
cumulative gain or loss existing in group equity is immediately
recognized in the consolidated income statement.
Pension and other post-employment benefits
The net assets and net liabilities recognized in 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 in case 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.
31 www.ahold.com/reports2008
Financial statements
AHOLD ANNUAL REPORT 2008 56
Fair value changes of derivative instruments that qualify for
fair value hedge accounting treatment are recognized in the
consolidated income statement in the periods in which they
arise, together with any changes in fair value of the hedged
asset or liability. If the hedging instrument no longer meets the
criteria for hedge accounting, the adjustment to the carrying
amount of the hedged item is amortized in the consolidated
income statement over the remaining period to maturity of
the hedged item.
Financial guarantees
Financial guarantees are recognized initially as a liability
at fair value. Subsequently, the liability is measured at the
higher of the best estimate of the expenditure required to
settle the obligation and the amount initially recognized less
cumulative amortization.
Equity
Equity instruments issued by the Company are recorded at
the value of proceeds received. Own equity instruments which
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
consolidated 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 consolidated
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.
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. 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 at 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 consolidated income
statement immediately.
