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3 Significant accounting policies continued
Ahold
Annual Report 2011
Groupata glance
Performance
Governance
Investors
Notes to the consolidated financial statements continued
On the disposal of a foreign operation resulting in loss of control,
loss of joint control, or loss of significant influence, the related
cumulative exchange rate difference that was included in equity is
transferred to the consolidated income statement. On the partial
disposal of a foreign operation not resulting in loss of control, the
related cumulative exchange rate difference that was included in
equity is proportionately re-attributed to the non-controlling interests
in that foreign operation. On the disposal of a foreign operation not
resulting in loss of joint control or loss of significant influence, the
related cumulative exchange rate difference that was included
in equity is proportionately transferred to the consolidated
income statement.
Segmentation
Ahold's operating segments are its retail operating companies that
engage in business activities from which they earn revenues and
incur expenses and whose operating results are regularly reviewed
by the Corporate Executive Board to make decisions about
resources to be allocated to the segments and to assess their
performance. In establishing the reportable segments, certain
operating segments with similar economic characteristics have
been aggregated.
Performance of the segments is evaluated against several
measures, of which operating income is the most important.
Intersegment sales are executed under normal commercial terms
and conditions that would also be available to unrelated third
parties. Net sales are attributed to geographic regions based
on the location of stores.
Net sales
Ahold generates and recognizes net sales to retail customers at
the point of sale in its stores and upon delivery of groceries to
internet customers. Ahold also generates revenues from the sale
of products to retail franchisees that are recognized upon delivery.
Ahold recognizes franchise fees as revenue when all material
services relating to the contract have been substantially performed.
Future discounts earned by customers in connection with bonus or
loyalty cards and other company-sponsored programs are deferred
on the balance sheet at the time of the sale and subsequently
recognized in the income statement when redeemed.
Generally, net sales and cost of sales are recorded based on the
gross amount received from the customer for products sold and the
amount paid to the vendor for products purchased. However, for
certain products or services, such as the sale of lottery tickets, third-
party prepaid phone cards, stamps, and public transportation
tickets, Ahold acts as an agent and consequently records the
amount of commission income in its net sales. Net sales exclude
sales taxes and value-added taxes.
Cost of sales
Cost of sales includes the purchase price of the products sold and
other costs incurred in bringing the inventories to the location and
condition ready for sale. These costs include costs of purchasing,
storing, rent, depreciation of property, plant and equipment,
salaries, and transporting products to the extent that it relates to
bringing the inventories to the location and condition ready for sale.
Vendor allowances
Ahold receives various types of vendor allowances. The most
common allowances vendors offer are (i) volume allowances,
which are off-invoice or amounts billed back to vendors based on
the quantity of products sold to customers or purchased from the
vendor and (ii) promotional allowances, which relate to cooperative
advertising and market development efforts. Volume allowances
are recognized as a reduction of the cost of the related products
as they are sold. Promotional allowances are recognized as a
reduction of the cost of the related products when the Company
has performed the activities specified in the contract with the
vendor. If the contract does not specify any performance criteria,
the allowance is recognized over the term of the contract. Vendor
allowances are generally deducted from cost of sales, unless there
is clear evidence that they should be classified as revenue or a
reimbursement of costs. Ahold recognizes vendor allowances only
where there is evidence of a binding arrangement with the vendor,
the amount can be estimated reliably, and receipt is probable.
The accounting for vendor allowances requires a number of
estimates. First, the Company must estimate the allowances that
are earned based on the fulfillment of its related obligations, many
of which require management to estimate the volume of purchases
that will be made during a period of time. Second, the Company
needs to estimate the amount of related product that was sold and
the amount that remains in ending inventories and accordingly
allocate the allowance to cost of sales or inventories. Management
makes this estimate based on the turnover of the inventories and
allocates a portion of the related vendor allowance to ending
inventories until such product is estimated to have been sold
to customers.
Selling expenses
Selling expenses consist of store employees' salaries and wages,
store expenses, rent income and rent expense or depreciation
related to stores, advertising costs, and other selling expenses.
General and administrative expenses
General and administrative expenses consist of support office
employees' salaries and wages, rent and depreciation of support
offices, impairment losses and reversals, gains and losses on
the sale of non-current assets and disposal groups held for sale,
restructuring costs, and other general and administrative expenses.
Share-based compensation
The grant date fair value of share-based compensation plans is
expensed, with a corresponding increase in equity, on a straight-
line basis over the vesting periods of the grants. The cumulative
expense recognized at each balance sheet date reflects the extent
to which the vesting period has expired and the Company's
best estimate of the number of shares that will eventually vest.
No expense is recognized for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition (e.g. total shareholder return). Those are treated as
vested irrespective of whether or not the market condition is
ultimately satisfied, provided that all non-market conditions
(e.g. continued employment) are satisfied.