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Notes to the consolidated financial statements
3 Significant accounting policies -
continued
Financials
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 and 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.
Impairment of non-current assets other than goodwill
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. If 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 the asset's 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 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, if required, its carrying amount
is increased to the revised recoverable amount. 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
Inventories are stated at the lower of cost or net realizable value.
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 attributable to inventories.
The cost of inventories is determined using either the first-in,
first-out ("FIFO") method or the weighted average cost method,
depending on their nature or use. For certain inventories, cost
is measured using the retail method, in which the sales value of
the inventories is reduced by the appropriate percentage of gross
margin. Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated marketing,
distribution and selling expenses.
Financial instruments
Financial assets and liabilities
Financial assets and liabilities are recognized when the Company
becomes a party to the contractual provisions of the instrument.
Financial assets are derecognized when the rights to receive cash
flows from the financial assets expire, or if the Company transfers
the financial asset to another party and does not retain control or
substantially all risks and rewards of the asset. Financial liabilities
are derecognized when the Company's obligations specified
in the contract expire or are discharged or canceled. Purchases
and sales of financial assets in the normal course of business
are accounted for at settlement date (i.e. the date that the asset
is delivered to or by the Company).
At initial recognition, management classifies its financial assets
as either (i) at fair value through profit or loss, (ii) loans and
receivables, (iii) held to maturity or (iv) available for sale,
depending on the purpose for which the financial assets were
acquired. Financial assets are initially recognized at fair value.
For instruments not classified as at fair value through profit or loss,
any directly attributable transaction costs are initially recognized
as part of the asset value. Directly attributable transaction costs
related to financial assets at fair value through profit or loss are
expensed when incurred.
The fair value of quoted investments is based on current bid
prices. If the market for a financial asset is not active, or if the
financial asset represents an unlisted security, the Company
establishes fair value using valuation techniques. These include
the use of recent arm's-length transactions, reference to other
instruments that are substantially the same and discounted cash
flow analysis, making maximum use of market inputs. Subsequent
to initial recognition, financial assets are measured as described
below. At each balance sheet date, the Company assesses whether
there is objective evidence that a financial asset or a group of
financial assets is impaired.
Investments at fair value through profit or loss
Investments at fair value through profit or loss are those
investments that are either held for trading or designated as such
by the Company. A financial asset is classified as held for trading
if it is acquired principally for the purpose of selling in the short
term. Derivatives are classified as held for trading unless they are
designated as hedges. Financial instruments held for trading are
measured at fair value and changes therein are recognized in the
income statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They are carried at amortized cost using the effective interest
method, less any impairment losses. They are included in current
assets, except for loans and receivables with maturities greater
than 12 months after the balance sheet date.
Held to maturity financial assets
Held to maturity financial assets are non-derivative financial assets
with fixed or determinable payments and fixed maturity that the
Company has the positive intention and ability to hold to maturity.
Ahold Annual Report 2009 66
