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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
Derivative financial instruments
All derivative financial instruments are recognized initially on a settlement date basis and
subsequently remeasured at fair value. Gains and losses resulting from the fair value
remeasurement are recognized in the income statement as fair value gains (losses) on
financial instruments, unless the derivative qualifies and is effective as a hedging instrument in
a designated hedging relationship. In order for a derivative financial instrument to qualify as a
hedging instrument for accounting purposes, the Company must document (i) at the inception
of the transaction, the relationship between the hedging instrument and the hedged item,
as well as its risk management objectives and strategy for undertaking various hedging
transactions and (ii) its assessment, both at hedge inception and on an ongoing basis, of
whether the derivative that is used in the hedging transaction is highly effective in offsetting
changes in fair values or cash flows of hedged items. Derivatives that are designated as
hedges are accounted for as either cash flow hedges or fair value hedges.
The effective portion of changes in the fair value of derivatives that are designated and qualify
as cash flow hedges is recognized initially in the cash flow hedging reserve, a separate
component of equity. The gain or loss relating to the ineffective portion is recognized
immediately in the income statement. Amounts accumulated in equity are reclassified into
the income statement in the same period in which the related exposure impacts the income
statement. When a cash flow hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognized
when the forecasted transaction is ultimately recognized in the income statement. When a
forecasted transaction is no longer expected to occur, the cumulative gain or loss existing in
equity is immediately recognized in the income statement.
Fair value changes of derivative instruments that qualify for fair value hedge accounting
treatment are recognized in the income statement in the periods in which they arise, together
with any changes in fair value of the hedged asset or liability. If the hedging instrument no
longer meets the criteria for hedge accounting, the adjustment to the carrying amount of the
hedged item is amortized in the income statement over the remaining period to maturity of the
hedged item.
Reinsurance assets and liabilities
Reinsurance assets include estimated receivable balances related to reinsurance contracts
purchased by the Company. Reinsurance liabilities represent the expected insurance risks
related to reinsurance contracts sold by the Company. Reinsurance assets and liabilities are
measured on a discounted basis using accepted actuarial methods.
Financial guarantees
Financial guarantees are recognized initially as a liability at fair value. Subsequently, the
liability is measured at the higher of the best estimate of the expenditure required to settle the
obligation and the amount initially recognized less cumulative amortization.
Our performance
Governan
Finandals
Investors
Equity
Equity instruments issued by the Company are recorded at the value of proceeds received.
Own equity instruments that are bought back (treasury shares) are deducted from equity.
Incremental costs that are directly attributable to issuing or buying back own equity instruments
are recognized directly in equity, net of the related tax. No gain or loss is recognized in
the income statement on the purchase, sale, issue or cancellation of the Company's own
equity instruments.
Cumulative preferred financing shares
Cumulative preferred financing shares, for which dividend payments are not at the discretion
of the Company, are classified as non-current financial liabilities and are stated at amortized
cost. The dividends on these cumulative preferred financing shares are recognized as interest
expense in the income statement, using the effective interest method. From the date when
Ahold receives irrevocable notification from a holder of cumulative preferred financing shares
to convert these shares into common shares, the cumulative preferred financing shares are
classified as a separate class of equity.
Pension and other post-employment benefits
The net assets and net liabilities recognized on the consolidated balance sheet for defined
benefit plans represent the present value of the defined benefit obligations, less the fair value
of plan assets, adjusted for unrecognized actuarial gains or losses and unamortized past
service costs. Any net asset resulting from this calculation is limited to unrecognized actuarial
losses and past service cost, plus the present value of available refunds and reductions in
future contributions to the plan. No adjustment for the time value of money is made if the
Company has an unconditional right to a refund of the full amount of the surplus, even if such
a refund is realizable only at a future date.
Defined benefit obligations are actuarially calculated at least annually on the balance sheet
date using the projected unit credit method. The present value of the defined benefit
obligations is determined by discounting the estimated future cash outflows using interest rates
of high-quality corporate bonds denominated in the currency in which the benefits will be
paid, and that have an average duration similar to the expected duration of the related
pension liabilities. Actuarial gains and losses are recognized using the corridor approach,
which assumes that actuarial gains and losses may offset each other over the long term.
Under this approach, if, for a specific plan, the net unrecognized actuarial gains and losses at
the balance sheet date exceed the greater of 10% of the fair value of the plan assets and 10%
of the defined benefit obligation, the excess is taken into account in determining net periodic
expense for the subsequent period. The amount then recognized in the subsequent period is
the excess divided by the expected remaining average working lives of employees covered by
that plan on the balance sheet date.