Notes to the consolidated financial statements
3 Significant accounting policies -
continued
Financials O www.ahold.com/reports2009
Sale and leaseback
The gain or loss on sale and operating leaseback transactions is
recognized in the income statement immediately if (i) Ahold does
not maintain or maintains only minor continuing involvement
in these properties, other than the required lease payments and
(ii) these transactions occur at fair value. Any gain or loss on sale
and finance leaseback transactions is deferred and amortized
over the term of the lease. In classifying the leaseback in a sale
and leaseback transaction, similar judgments have to be made
as described above under "Leases."
In some sale and leaseback arrangements, Ahold sells a property
and only leases back a portion of that property. These properties
generally involve shopping centers, which contain an Ahold store
as well as other stores leased to third-party retailers. Ahold
recognizes a sale and the resulting profit on the portion of the
shopping center that is not leased back to the extent that (i) the
property is sold for fair value and (ii) the risks and rewards of
owning stores, which are not leased back to Ahold, have been
fully transferred to the buyer. The leaseback of the Ahold store
and any gain on the sale of the Ahold store is accounted for under
the sale and leaseback criteria described above.
In some sale and leaseback arrangements, Ahold subleases the
property to third parties (including franchisees) or maintains a form
of continuing involvement in the property sold, such as earn-out
provisions or obligations or options to repurchase the property.
In such situations, the transaction generally does not qualify for
sale and leaseback accounting, but rather is accounted for as a
financing transaction ("financing"). The carrying amount of the
asset remains on the balance sheet and the sale proceeds are
recorded as a financing obligation. The financing obligation is
amortized over the lease term, using either the effective interest
rate or Ahold's cost of debt rate, whichever is higher. Once Ahold's
continuing involvement ends, the sale is accounted for under the
sale and leaseback criteria described above.
Intangible assets
Goodwill and impairment of goodwill
Goodwill represents the excess of the cost of an acquisition over
the Company's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities at the date of acquisition,
and is carried at cost less accumulated impairment losses.
Goodwill on acquisitions of joint ventures and associates is
included in the carrying amount of the investment.
For the purposes of impairment testing, goodwill is allocated to
each of the cash-generating units (or groups of cash-generating
units) that is expected to benefit from the synergies of a business
combination. Goodwill is allocated to a cash-generating unit
(or group of cash-generating units) representing the lowest level
within the Company at which the goodwill is monitored for internal
management purposes and is never larger than an operating
segment before aggregation. Cash-generating units to which
goodwill has been allocated are tested for impairment annually,
or more frequently when there is an indication that the cash-
generating unit may be impaired. Goodwill on acquisitions of joint
ventures and associates is assessed for impairment as part of the
investment whenever there is an indication that the investment
may be impaired. An impairment loss is recognized for the amount
by which the cash-generating unit's carrying amount exceeds
its recoverable amount. The recoverable amount is the higher
of a cash-generating unit's fair value less cost to sell and its value
in use. An impairment loss is allocated first to reduce the carrying
amount of the goodwill and then to the other assets of the
cash-generating unit pro-rata on the basis of the carrying amount
of each asset in the cash-generating unit. An impairment loss
recognized for goodwill is not reversed in subsequent periods.
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.
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
Software
Lease-related intangibles
Other
7 - 10 years
3 - 10 years
remaining duration of the lease
5 - indefinite
The useful lives are reviewed, and adjusted if appropriate, at each
balance sheet date.
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.
Ahold Annual Report 2009 65
