o www.ahold.com/reports2009
Notes to the consolidated financial statements
3 Significant accounting policies -
continued
Financials
In the aggregate, the above changes did not have a material
impact on the balance sheet position. Therefore, the presentation
of a third balance sheet as of the beginning of the earliest
comparative period was not deemed necessary.
Consolidation
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 defined
as the power to govern the financial and operating policies of
an entity, 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, as appropriate, on the
consolidated balance sheet, in the consolidated income statement,
and in the consolidated statement of comprehensive income
for the non-controlling shareholders' share in the net assets and
the income or loss of subsidiaries. Non-controlling shareholders'
interest 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.
Foreign currency translation
The financial statements of each subsidiary are prepared in its
functional currency, which is determined based on the primary
economic environment in which each 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 during
consolidation are included in 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; therefore the exchange rate differences
relating to these loans are also included in equity, in the currency
translation reserve. At the time of the disposal of a foreign
operation, either in full or in part, the related cumulative exchange
rate difference that was included in equity is transferred to the
consolidated income statement.
Segmentation
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 segments and assess their
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.
Net sales
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 deferred on the
balance sheet at the time of the sale and subsequently recognized
in the income statement when redeemed.
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
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 that
it relates to bringing the inventories to the location and condition
ready for sale.
Vendor allowances
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,
Ahold Annual Report 2009 62
