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Notes to the consolidated financial statements
72
3 Significant accounting policies (continued)
Cost of sales
Vendor allowances
Selling expenses
General and administrative expenses
Share-based compensation
Income taxes
Non-current assets held for sale and discontinued operations
Ahold at a glance I Business review I Governance I Financials I Investors
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.
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 fulfilment 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 relate to our store and online operations and consist of 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 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.
The grant date fair value of equity-settled 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
Ahold
Annual Report 2014
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.
Income tax expense represents the sum of current and deferred tax. Income tax is recognized in the income
statement except to the extent that it relates to items recognized directly in equity or other comprehensive
income. Current tax expense is based on the best estimate of taxable income for the year, using tax rates
that have been enacted or substantively enacted at the balance sheet date and adjustments for current
taxes payable (receivable) for prior years. Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities and the corresponding tax basis used in the
computation of taxable income. Deferred tax assets and liabilities are generally recognized for all temporary
differences. However, deferred tax liabilities are not recognized if they arise from the initial recognition of
goodwill. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that, at the time of the transaction, affects neither accounting nor
taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply in the period when
the liability is settled or the asset is realized.
Deferred tax assets, including deferred tax assets for tax loss carryforward positions and tax credit
carryforward positions, are recognized to the extent that it is probable that future taxable income will be
available against which temporary differences, unused tax losses or unused tax credits can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable income will be available to allow all or part of the assets to
be recovered.
Deferred tax assets and liabilities are not discounted. Deferred income tax assets and liabilities are offset
on the balance sheet when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income taxes relate to income taxes levied by the same fiscal authority.
Current income tax assets and liabilities are offset on the balance sheet when there is a legally enforceable
right to offset and when the Company intends either to settle on a net basis or to realize the asset and settle the
liability simultaneously.
The ultimate tax effects of some transactions can be uncertain for a considerable period of time, requiring
management to estimate the related current and deferred tax positions. The Company recognizes liabilities
for uncertain tax positions when it is more likely than not that additional taxes will be due. These liabilities are
presented as current income taxes payable, except in jurisdictions where prior tax losses are being carried
forward to be used to offset future taxes that will be due; in these instances the liabilities are presented as a
reduction to deferred tax assets.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
through a sale transaction rather than through continuing use. For this to be the case the asset (or disposal
group) must be available for immediate sale in its present condition and its sale must be highly probable. Non-
current assets (or disposal groups) classified as held for sale are measured at the lower of the asset's carrying