El
84
3 Significant accounting policies (continued)
Ahold Annual Report 2012
Notes to the consolidated
financial statements
Ahold at a glance
Our strategy
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.
Our performance
Governan
Financials
Investors
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. 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.