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Notes to the consolidated financial statements
3 Significant accounting policies (continued)
Inventories
Financial instruments
Ahold at a glance I Business review I Governance I Financials I Investors
The recoverable amount is the higher of an asset's fair value less cost to sell and the asset's value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that refects current market assessments of the time value of money and the risks specific to the
asset. An impairment loss is recognized in the income statement for the amount by which the asset's carrying
amount exceeds its recoverable amount.
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 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 frst-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 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
Ahold
Annual Report 2014
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
a 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.
Loans and short-term borrowings
Loans and short-term borrowings are recognized initially at fair value, net of transaction costs incurred.
Loans and short-term borrowings are subsequently stated at amortized cost, unless they are designated as
fair value hedges. Any difference between the proceeds and redemption value is recognized in the income
statement over the period of the loans and short-term borrowings using the effective interest method. Loans are
classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
