Notes to the consolidated financial statements
2 Basis of preparation (continued)
Fair value measurements
3 Significant accounting policies
Foreign currency translation
Ahold at a glance I Business review I Governance I Financials I Investors
a 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.
a 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
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:
a Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity
can access at the measurement date.
a Level 2 inputs are inputs, other than quoted prices included within Level 1that are observable for the asset
or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices),
a Level 3 inputs are unobservable inputs for the asset or liability.
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.
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
Annual Report 2014
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. Exchange rate differences arising
during consolidation and on the translation of investments in subsidiaries 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.
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.
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
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 sales through its online Plaza platform, 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.