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3 Significant accounting policies (continued)
Ahold at a glance
Notes to the consolidated
financial statements
Our strategy
Our performance
Governan
Financials
Investors
Ahold Annual Report 2013
On the disposal of a foreign operation resulting in loss of control, loss of joint control or loss
of significant influence, the related cumulative exchange rate difference that was included in
equity is transferred to the consolidated income statement. On the partial disposal of a foreign
operation not resulting in loss of control, the related cumulative exchange rate difference that
was included in equity is proportionately re-attributed to the non-controlling interests in that
foreign operation. On the disposal of a foreign operation not resulting in loss of joint control
or loss of significant influence, the related cumulative exchange rate difference that was
included in equity is proportionately transferred to the consolidated income statement.
Segmentation
Ahold's operating segments are its retail operating companies that engage in business activities
from which they earn revenues and incur expenses and whose operating results are regularly
reviewed by the Management Board to make decisions about resources to be allocated to the
segments and to assess their performance. In establishing the reportable segments, certain
operating segments with similar economic characteristics have been aggregated.
The segments' performance is evaluated against several measures, of which operating
income is the most important. Intersegment sales are executed under normal commercial
terms and conditions that would also be available to unrelated third parties. Net sales are
attributed to geographic regions based on the location of stores.
Net sales
Ahold generates and recognizes net sales to retail customers at the point of sale in its stores
and upon delivery of goods through the online channel. Ahold also generates revenues from
the sale of products to retail franchisees that are recognized upon delivery. Ahold recognizes
franchise fees as revenue when all material services relating to the contract have been
substantially performed. Revenue from the sale of gift cards and gift certificates is recognized
when the gift card or gift certificate is redeemed by the retail customer. Future discounts
earned by customers in connection with bonus or loyalty cards and other company-sponsored
programs are deferred on the balance sheet at the time of the sale and subsequently
recognized in the income statement when redeemed.
Generally, net sales and cost of sales are recorded based on the gross amount received from
the customer for products sold and the amount paid to the vendor for products purchased,
excluding sales taxes and value-added taxes. However, for certain products or services, such
as the sale of lottery tickets, third-party prepaid phone cards, stamps and public transportation
tickets, Ahold acts as an agent and consequently records the amount of commission income
in its net sales.
Cost of sales
Cost of sales includes the purchase price of the products sold and other costs incurred in
bringing the inventories to the location and condition ready for sale. These costs include costs
of purchasing, storing, rent, depreciation of property, plant and equipment, salaries, and
transporting products to the extent that it relates to bringing the inventories to the location and
condition ready for sale.
Vendor allowances
Ahold receives various types of vendor allowances. The most common allowances vendors
offer are (i) volume allowances, which are off-invoice or amounts billed back to vendors
based on the quantity of products sold to customers or purchased from the vendor and (ii)
promotional allowances, which relate to cooperative advertising and market development
efforts. Volume allowances are recognized as a reduction of the cost of the related products as
they are sold. Promotional allowances are recognized as a reduction of the cost of the related
products when the Company has performed the activities specified in the contract with the
vendor. If the contract does not specify any performance criteria, the allowance is recognized
over the term of the contract. Vendor allowances are generally deducted from cost of sales,
unless there is clear evidence that they should be classified as revenue or a reimbursement
of costs. Ahold recognizes vendor allowances only where there is evidence of a binding
arrangement with the vendor, the amount can be estimated reliably and receipt is probable.
The accounting for vendor allowances requires a number of estimates. First, the Company
must estimate the allowances that are earned based on the fulfillment of its related obligations,
many of which require management to estimate the volume of purchases that will be made
during a period of time. Second, the Company needs to estimate the amount of related
product that was sold and the amount that remains in ending inventories and accordingly
allocate the allowance to cost of sales or inventories. Management makes this estimate based
on the turnover of the inventories and allocates a portion of the related vendor allowance to
ending inventories until such product is estimated to have been sold to customers.
Selling expenses
Selling expenses consist of store employees' salaries and wages, store expenses, rent income and
rent expense or depreciation related to stores, advertising costs and other selling expenses.
General and administrative expenses
General and administrative expenses consist of support office employees' salaries and wages,
rent and depreciation of support offices, impairment losses and reversals, gains and losses on
the sale of non-current assets and disposal groups held for sale, restructuring costs, and other
general and administrative expenses.
Share-based compensation
The grant date fair value of share-based compensation plans is expensed, with a
corresponding increase in equity, on a straight-line basis over the vesting periods of the grants.
The cumulative expense recognized at each balance sheet date reflects the extent to which the
vesting period has expired and the Company's best estimate of the number of shares that will
eventually vest. No expense is recognized for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition (e.g., total shareholder return).
Those are treated as vested irrespective of whether or not the market condition is ultimately
satisfied, provided that all non-market conditions (e.g., continued employment) are satisfied.