O www.ahold.com/reports2009
Notes to the consolidated financial statements
3 Significant accounting policies -
continued
Financials
They are carried at amortized cost using the effective interest
method, less any impairment losses. They are included in current
assets, except for held to maturity financial assets with maturities
greater than 12 months after the balance sheet date.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial
assets that are either designated in this category of financial assets
or not classified in any of the other categories. They are measured
at fair value based on quoted market prices with changes therein
recognized directly in equity until the investment is derecognized
or determined to be impaired, at which time the cumulative gain
or loss previously recorded in equity is transferred to the income
statement. Available-for-sale financial assets are included in
non-current assets unless management intends to dispose of
the investment within 12 months after the balance sheet date.
Loans and short-term borrowings
Loans and short-term borrowings are recognized initially at fair
value, net of transaction costs incurred. Loans and short-term
borrowings are subsequently stated at amortized cost, unless
they are designated as fair value hedges. Any difference between
the proceeds and redemption value is recognized in the income
statement over the period of the loans and short-term borrowings
using the effective interest method. Loans are classified as current
liabilities unless the Company has an unconditional right to defer
settlement of the liability for at least 12 months after the balance
sheet date.
Derivative financial instruments
All derivative financial instruments are recognized initially on a
settlement date basis and subsequently remeasured at fair value.
Gains and losses resulting from the fair value remeasurement
are recognized in the income statement as fair value gains (losses)
on financial instruments, unless the derivative qualifies and
is effective as a hedging instrument in a designated hedging
relationship. In order for a derivative financial instrument to qualify
as a hedging instrument for accounting purposes, the Company
must document (i) at the inception of the transaction, the
relationship between the hedging instrument and the hedged item,
as well as its risk management objectives and strategy for
undertaking various hedging transactions and (ii) its assessment,
both at hedge inception and on an ongoing basis, of whether the
derivative that is used in the hedging transaction is highly effective
in offsetting changes in fair values or cash flows of hedged items.
Derivatives that are designated as hedges are accounted for as
either cash flow hedges or fair value hedges.
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges is recognized
initially in the cash flow hedging reserve, a separate component
of equity. The gain or loss relating to the ineffective portion
is recognized immediately in the income statement. Amounts
accumulated in equity are reclassified into the income statement in
the same period in which the related exposure impacts the income
statement. When a cash flow hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at
that time remains in equity and is recognized when the forecasted
transaction is ultimately recognized in the income statement.
When a forecasted transaction is no longer expected to occur, the
cumulative gain or loss existing in equity is immediately recognized
in the income statement.
Fair value changes of derivative instruments that qualify for fair
value hedge accounting treatment are recognized in the 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 income statement over the remaining period to maturity of
the hedged item.
Reinsurance assets and liabilities
Reinsurance assets include estimated receivable balances related
to reinsurance contracts purchased by the Company. Reinsurance
liabilities represent the expected insurance risks related to
reinsurance contracts sold by the Company. Reinsurance assets
and liabilities are measured on a discounted basis using accepted
actuarial methods.
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 that
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 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.
Pension and other post-employment benefits
The net assets and net liabilities recognized on 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.
Ahold Annual Report 2009 67
