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2 Basis of preparation (continued)
3 Significant accounting policies
Ahold at a glance
Notes to the consolidated
financial statements
Our strategy
Our performance
Governan
Financials
Investors
Impairments (Note 3)
Judgments and estimates are required, not only to determine whether there is an indication
that an asset may be impaired, but also whether indications exist that impairment losses
previously recognized may no longer exist or may have decreased (impairment reversal).
Company and multi-employer pension obligations (Note 23)
The present value of the pension obligations depends on a number of assumptions that are
determined on an actuarial basis. The assumptions used in determining the net cost (income)
for pensions include the discount rate that should be used to determine the present value of
estimated future cash outflows expected to be required to settle the pension obligations. Other
key assumptions comprise longevity and future salary and pension increases. Additional
information is disclosed in Note 23.
Provisions and contingencies (Notes 24 and 34)
The recognition of provisions requires estimates and judgment regarding the timing and the
amount of outflow of resources. The main estimates are as follows:
Self-insurance program: estimates and assumptions include an estimate of claims
incurred but not yet reported, historical loss experience, projected loss development
factors, estimated changes in claim reporting patterns, claim settlement patterns,
judicial decisions and legislation;
Loyalty programs: estimated cost of benefits to which customers participating in the
loyalty program are entitled;
Claims and legal disputes: management, supported by internal and external legal
counsel, where appropriate, determines whether it is more likely than not that an
outflow of resources will be required to settle an obligation. If this is the case, the
best estimate of the outflow of resources is recognized;
Restructuring: The provisions are based on formal and approved plans using the
best information available at the time. The amounts that are ultimately incurred
may change as the plans are executed;
Onerous contracts: mainly relate to unfavorable lease contracts and include the
excess of the unavoidable costs of meeting the obligations under the contracts over
the benefits expected to be received under such contracts.
Fair value measurements
For financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3
based on the degree to which the inputs to the fair value measurements are observable and
the significance of the inputs to the fair value measurement in its entirety, which are described
as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
Ahold Annual Report 2013
Consolidation
The consolidated financial statements incorporate the financial figures of the Company and its
subsidiaries. Subsidiaries are entities over which the Company has control. The Company
controls an entity when it is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date that control commences until the date that
control ceases. All intra-group transactions, balances, income and expenses are eliminated
upon consolidation. Unrealized losses on intra-group transactions are eliminated, unless the
transaction provides evidence of an impairment of the assets transferred.
Non-controlling interests are recorded, as appropriate, on the consolidated balance sheet,
in the consolidated income statement, and in the consolidated statement of comprehensive
income for the non-controlling shareholders' share in the net assets and the income or loss
of subsidiaries. Non-controlling shareholders' interest in an acquired subsidiary is initially
measured at the non-controlling interest's proportion of the net fair value of the assets,
liabilities and contingent liabilities recognized.
Foreign currency translation
The financial statements of subsidiaries, joint ventures and associates are prepared in their
functional currencies, which are determined based on the primary economic environment in
which they operate. Transactions in currencies other than the functional currency are recorded
at the rates of exchange prevailing on the transaction dates. At each balance sheet date,
monetary items denominated in foreign currencies are translated into the entity's functional
currency at the then prevailing rates. Exchange differences arising on the settlement and
translation of monetary items are included in net income for the period. Goodwill and fair
value adjustments arising on the acquisition of a foreign entity are considered as assets and
liabilities denominated in the functional currency of the foreign entity.
Upon consolidation, the assets and liabilities of subsidiaries with a functional currency other
than the euro are translated into euros using the exchange rates prevailing at the balance
sheet date. Income and expense items are translated at the average exchange rates for the
respective periods. Investments in joint ventures and associates with a functional currency other
than the euro are translated into euros using exchange rates prevailing on the balance sheet
date. Exchange rate differences arising during consolidation and on the translation of
investments in subsidiaries, joint ventures and associates are included in other comprehensive
income and in equity, in the currency translation reserve. Intercompany loans to and from
foreign entities for which settlement is neither planned nor likely to occur in the foreseeable
future are considered to increase or decrease the net investment in that foreign entity; therefore
the exchange rate differences relating to these loans are also included in other comprehensive
income and in equity, in the currency translation reserve.