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Notes to the consolidated financial statements
73
3 Significant accounting policies (continued)
Property, plant and equipment
Investment property
Leases and sale and leaseback transactions
Ahold at a glance I Business review I Governance I Financials I Investors
amount and the fair value less costs of disposal. Depreciation or amortization of an asset ceases when it is
classified as held for sale. Equity accounting ceases for an investment in a joint venture or associate when it is
classified as held for sale; instead, dividends received are recognized in the consolidated income statement.
A discontinued operation is a component of the Company that either has been disposed of or is classified
as held for sale, and represents a separate major line of business or geographical area of operations or is
part of a single coordinated plan to dispose of a separate major line of business or geographical area of
operations. Results from discontinued operations that are clearly identifiable as part of the component disposed
of and that will not be recognized subsequent to the disposal are presented separately as a single amount in
the consolidated income statement. Results and cash Rows from discontinued operations are reclassified for
prior periods and presented in the financial statements so that the results and cash Rows from discontinued
operations relate to all operations that have been discontinued as of the balance sheet date for the latest
period presented.
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment
losses. Cost includes expenditures that are directly attributable to the acquisition or construction of an asset and
borrowing costs incurred during construction. Where applicable, estimated asset retirement costs are added
to the cost of an asset. Subsequent expenditures are capitalized only when it is probable that future economic
benefits associated with the item will Row to the Company and the costs can be measured reliably. All other
subsequent expenditures represent repairs and maintenance and are expensed as incurred.
Depreciation is computed using the straight-line method based on the estimated useful lives of the items of
property, plant and equipment, taking into account the estimated residual value. Where an item of property,
plant and equipment comprises major components having different useful lives, each such part is depreciated
separately. The assets' useful lives are reviewed, and adjusted, if appropriate, at each balance sheet date.
The estimated useful lives of property, plant and equipment are:
Land
indefinite
Buildings
30-40 years
Material handling systems (in warehouses)
20-30 years
Building components
7-20 years
Machinery and equipment
5-12 years
Other
3-10 years
Depreciation of assets subject to finance leases and leasehold improvements is calculated on a straight-
line basis over either the lease term (including renewal periods when renewal is reasonably assured) or the
estimated useful life of the asset, whichever is shorter.
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
Ahold
Annual Report 2014
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
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 of the risks
and rewards of ownership to Ahold. For leases determined to be finance leases, the asset and liability are
recognized based on their values 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
