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3 Significant accounting policies (continued)
Ahold Annual Report 2012
Notes to the consolidated
financial statements
Ahold at a glance
Our strategy
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 - 25 years
Software
3 - 10 years
Lease-related intangibles
remaining duration of the lease
Brand names
indefinite
Other
5 - indefinite
The useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Our performance
Governan
Financials
Investors
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% and 50% 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.