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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
For the purposes of impairment testing, goodwill is allocated to
each of the cash-generating units (or groups of cash-generating
units) that is expected to benefit from the synergies of a business
combination. Goodwill is allocated to a cash-generating unit
(or group of cash-generating units) representing the lowest level
within the Company at which the goodwill is monitored for internal
management purposes and is never larger than an operating
segment before aggregation. Cash-generating units to which
goodwill has been allocated are tested for impairment annually,
or more frequently when there is an indication that the cash-
generating unit may be impaired. Goodwill on acquisitions of joint
ventures and associates is assessed for impairment as part of the
investment whenever there is an indication that the investment may
be impaired. An impairment loss is recognized for the amount by
which the cash-generating unit's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of a
cash-generating unit's fair value less cost to sell and its value in
use. An impairment loss is allocated first to reduce the carrying
amount of the goodwill and then to the other assets of the cash-
generating unit pro-rata on the basis of the carrying amount of each
asset in the cash-generating unit. An impairment loss recognized
for goodwill is not reversed in subsequent periods.
On the partial or complete disposal of an operation, the goodwill
attributable to that operation is included in the determination of the
gain or loss on disposal.
Other intangible assets
Other intangible assets are stated at fair value, determined at the
date of acquisition of the related underlying business, or at cost if
they are separately acquired or represent internally developed
software, less accumulated amortization and impairment losses.
Customer relationships acquired in business acquisitions are stated
at fair value determined using an income approach. Direct costs
related to development of software for internal use are capitalized
only if the costs can be measured reliably, technological feasibility
has been established, future economic benefits are probable, and
the Company intends to complete development and to use the
software. All other costs, including all overhead, general and
administrative, and training costs, are expensed as incurred.
Lease-related intangible assets, consisting primarily of favorable
operating lease contracts acquired in business acquisitions,
are measured at the present value of the amount by which the
contract terms are favorable relative to market prices at the date
of acquisition.
Amortization is computed using the straight-line method based on
the estimated useful lives, which are as follows:
Customer relationships 7 - 10 years
Software 3 - 10 years
Lease-related intangibles remaining duration of the lease
Other 5 - indefinite
The useful lives are reviewed, and adjusted if appropriate, at each
balance sheet date.
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.
