3 Significant accounting policies continued
Ahold
Annual Report 2010
Group at a glance
Performance
Governance
Financials
Notes to the consolidated financial statements continued
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.
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.
Cash and cash equivalents
Cash and cash equivalents include all cash on hand balances,
checks, debit and credit card receivables, short-term highly liquid
cash investments, and time deposits with original maturities of three
months or less. Time deposits with original maturities of more than
three months but less than 12 months are classified as other
current financial assets. Bank overdrafts are included in short-term
borrowings.
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.
