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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
In subsequent years, Ahold assesses whether indications exist that impairment losses previously
recognized for non-current assets other than goodwill may no longer exist or may have
decreased. If any such indication exists, the recoverable amount of that asset is recalculated
and, if required, its carrying amount is increased to the revised recoverable amount. The
increase is recognized in operating income as an impairment reversal. An impairment reversal
is recognized only if it arises from a change in the assumptions that were used to calculate the
recoverable amount. The increase in an asset's carrying amount due to an impairment
reversal is limited to the depreciated amount that would have been recognized had the
original impairment not occurred.
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. For
certain inventories, cost is approximated using the retail method, in which the sales value of
the inventories is reduced by the appropriate percentage of gross margin. 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. 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 a financial 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.
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 and similar instruments 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.