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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
Investment property
Investment property consists of land and buildings held by Ahold to earn rental income or for
capital appreciation, or both. These properties are not used by Ahold in the ordinary course of
business. Ahold often owns (or leases under a finance lease) shopping centers containing both
an Ahold store and third-party retail units. In these cases, the third-party retail units generate
rental income, but are primarily of strategic importance for operating purposes to Ahold in its
retail operations. Ahold recognizes the part of an owned (or leased under a finance lease)
shopping center that is leased to third-party retailers as investment property, unless it represents
an insignificant portion of the property. Land and buildings leased to franchisees are not
considered to be investment property as they contribute directly to Ahold's retail operations.
Investment property is measured on the same basis as property, plant and equipment.
Leases and sale and leaseback transactions
Leases
Ahold is a lessee of land, buildings and equipment under operating and finance lease
arrangements. Ahold classifies its leases as finance leases when the lease agreement transfers
substantially all the risks and rewards of ownership to Ahold. For leases determined to be
finance leases, the asset and liability are recognized at the inception of the lease at an amount
equal either to the fair value of the leased asset or the present value of the minimum lease
payments during the lease term, whichever is lower. Lease payments are apportioned between
interest charges and a reduction of the lease liability so as to achieve a constant rate of interest
on the remaining liability balance. Contingent rentals are expensed as incurred.
Leases that do not qualify as finance leases are classified as operating leases, and the related
lease payments are expensed on a straight-line basis over the lease term, including, as
applicable, any rent-free period during which Ahold has the right to use the asset. Payments
made to Ahold representing incentives to sign a new lease or representing reimbursements for
leasehold improvements are deferred and recognized on a straight-line basis over the term of
the lease as reductions to rental expense.
For leases with renewal options where the renewal is reasonably assured, the lease term used
to (i) determine the appropriate lease classification, (ii) compute periodic rental expense and
(iii) depreciate leasehold improvements (unless their economic lives are shorter) includes the
periods of expected renewals.
Determining whether a lease agreement is a finance or an operating lease requires judgment
on various aspects. These include the fair value of the leased asset, the economic life of
the leased asset, whether or not to include renewal options in the lease term and the
determination of an appropriate discount rate to calculate the present value of the minimum
lease payments.
Sale and leaseback
The gain or loss on sale and operating leaseback transactions is recognized in the income
statement immediately if (i) Ahold does not maintain or maintains only minor continuing
involvement in these properties, other than the required lease payments, and (ii) these
transactions occur at fair value. Any gain or loss on sale and finance leaseback transactions is
deferred and amortized over the term of the lease. In classifying the leaseback in a sale and
leaseback transaction, similar judgments have to be made as described above under Leases.
In some sale and leaseback arrangements, Ahold sells a property and only leases back a
portion of that property. These properties generally involve shopping centers that contain an
Ahold store as well as other stores leased to third-party retailers. In such situations, Ahold
recognizes a sale and the resulting profit on the portion of the shopping center that is not
leased back to the extent that (i) the property is sold for fair value and (ii) the risks and rewards
of owning stores that are not leased back to Ahold have been fully transferred to the buyer.
The leaseback of the Ahold store and any gain on the sale of the Ahold store is accounted
for under the sale and leaseback criteria described above.
In some sale and leaseback arrangements, Ahold subleases the property to third parties
(including franchisees) or maintains a form of continuing involvement in the property sold,
such as earn-out provisions or obligations or options to repurchase the property. In such
situations, the transaction generally does not qualify for sale and leaseback accounting,
but rather is accounted for as a financing transaction (financing). The carrying amount
of the asset remains on the balance sheet and the sale proceeds are recorded as a financing
obligation. The financing obligation is amortized over the lease term. Once Ahold's
continuing involvement ends, the sale is accounted for under the sale and leaseback
criteria described above.
Intangible assets
Goodwill and impairment of goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the
consideration transferred over the Company's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities at the date of acquisition, and is carried at cost less
accumulated impairment losses. Goodwill on acquisitions of joint ventures and associates is
included in the carrying amount of the investment.
