O www.ahold.oom/reports2009
Notes to the consolidated financial statements
3 Significant accounting policies -
continued
Financials
A discontinued operation is a component of the Company that
either has been disposed of, or is classified as held for sale, and
represents a separate major line of business or geographical area
of operations or is part of a single coordinated plan to dispose of a
separate major line of business or geographical area of operations.
Results from discontinued operations that are clearly identifiable as
part of the component disposed of and that will not be recognized
subsequent to the disposal are presented separately as a single
amount in the consolidated income statement. Results and cash
flows from discontinued operations are reclassified for prior periods
presented in the financial statements so that the results and cash
flows from discontinued operations relate to all operations that
have been discontinued as of the balance sheet date for the latest
period presented.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. Cost includes
expenditures that are directly attributable to the acquisition or
construction of an asset and includes borrowing costs incurred
during construction. Where applicable, estimated asset retirement
costs are added to the cost of an asset. Subsequent expenditures
are capitalized only when it is probable that future economic
benefits associated with the item will flow to the Company and the
costs can be measured reliably. All other subsequent expenditures
represent repairs and maintenance and are expensed as incurred.
Depreciation is computed using the straight-line method based
on the estimated useful lives of the items of property, plant and
equipment, taking into account the estimated residual value.
Where an item of property, plant and equipment comprises
major components having different useful lives, each such part
is depreciated separately. The assets' useful lives are reviewed,
and adjusted, if appropriate, at each balance sheet date.
The estimated useful lives of property, plant and equipment are:
Land indefinite
Buildings 30 - 40 years
Building components 7 - 20 years
Machinery and equipment 5 - 12 years
Other 3 - 10 years
Depreciation of assets subject to finance leases and leasehold
improvements is calculated on a straight-line basis over either
the lease term (including renewal periods when renewal is
reasonably assured) or the estimated useful life of the asset,
whichever is shorter.
Investment property
Investment property consists of land and buildings held by
Ahold to earn rental income or for capital appreciation, or both.
These properties are not used by Ahold in the ordinary course
of business. Ahold often owns (or leases under a finance lease)
shopping centers containing both an Ahold store and third-party
retail units. In these cases, the third-party retail units generate
rental income, but are primarily of strategic importance for
operating purposes to Ahold in its retail operations. Ahold
recognizes the part of an owned (or leased under a finance lease)
shopping center that is leased to third-party retailers as investment
property, unless it represents an insignificant portion of the
property. Land and buildings leased to franchisees are not
considered to be investment property as they contribute directly
to Ahold's retail operations. Investment property is measured on
the same basis as property, plant and equipment.
Leases and sale and leaseback transactions
Leases
Ahold is a lessee of land, buildings and equipment under operating
and finance lease arrangements. Ahold classifies its leases as
finance leases when the lease agreement transfers substantially
all the risks and rewards of ownership to Ahold. For leases
determined to be finance leases, the asset and liability are
recognized at the inception of the lease at an amount equal either
to the fair value of the leased asset or the present value of the
minimum lease payments during the lease term, whichever is
lower. Lease payments are apportioned between interest charges
and a reduction of the lease liability so as to achieve a constant
rate of interest on the remaining liability balance. Contingent
rentals are expensed as incurred.
Leases that do not qualify as finance leases are classified as
operating leases, and the related lease payments are expensed
on a straight-line basis over the lease term, including, as
applicable, any rent-free period during which Ahold has the right
to use the asset. Payments made to Ahold representing incentives
to sign a new lease or representing reimbursements for leasehold
improvements are deferred and recognized on a straight-line basis
over the term of the lease as reductions to lease expense.
For leases with renewal options where the renewal is reasonably
assured, the lease term used to (i) determine the appropriate
lease classification, (ii) compute periodic rental expense and
(iii) depreciate leasehold improvements (unless their economic
lives are shorter) includes the periods of expected renewals.
Determining whether a lease agreement is a finance or an
operating lease requires judgment on various aspects that include
the fair value of the leased asset, the economic life of the leased
asset, whether or not to include renewal options in the lease term
and determining an appropriate discount rate to calculate the
present value of the minimum lease payments.
Ahold Annual Report 2009 64
