3 Significant accounting policies continued
Ahold
Annual Report 2011
Groupata glance
Performance
Governance
Notes to the consolidated financial statements continued
Investors
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 cancelled. 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.
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 derecognzed or
determined to be impaired, at which time the cumulative gain or
loss previously recorded in equity is transferred to the income
statement. Investments in equity instruments that do not have
a quoted market price and whose fair value cannot be reliably
measured are carried at cost. 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.