3 Significant accounting policies continued
Ahold
Annual Report 2010
Group at a glance
Performance
Governance
Financials
Notes to the consolidated financial statements continued
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.
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.
