Notes to the consolidated financial statements
76
3 Significant accounting policies (continued)
Pension and other post-employment benefits
Ahold at a glance I Business review I Governance I Financials I Investors
Derivative financial instruments
All derivative financial instruments are initially recognized at fair value at the date the derivative contracts
are entered into and are subsequently remeasured to their fair value at the end of each reporting period.
Gains and losses resulting from the fair value remeasurement are recognized in the income statement as
fair value gains (losses) on financial instruments, unless the derivative qualifies and is effective as a hedging
instrument in a designated hedging relationship. In order for a derivative financial instrument to qualify as a
hedging instrument for accounting purposes, the Company must document (i) at the inception of the transaction,
the relationship between the hedging instrument and the hedged item, as well as its risk management
objectives and strategy for undertaking various hedging transactions and (ii) its assessment, both at hedge
inception and on an ongoing basis, of whether the derivative that is used in the hedging transaction is highly
effective in offsetting changes in fair values or cash flows of hedged items. Derivatives that are designated as
hedges are accounted for as either cash flow hedges or fair value hedges.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized initially in the cash flow hedging reserve, a separate component of equity. The gain or
loss relating to the ineffective portion is recognized immediately in the income statement. Amounts accumulated
in equity are reclassified into the income statement in the same period in which the related exposure impacts the
income statement. When a cash flow hedge no longer meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity at that time remains in equity and is recognized when the forecasted transaction is
ultimately recognized in the income statement. When a forecasted transaction is no longer expected to occur,
the cumulative gain or loss existing in equity is immediately recognized in the income statement.
Fair value changes of derivative instruments that qualify for fair value hedge accounting treatment are
recognized in the income statement in the periods in which they arise, together with any changes in fair value
of the hedged asset or liability. If the hedging instrument no longer meets the criteria for hedge accounting, the
adjustment to the carrying amount of the hedged item is amortized in the income statement over the remaining
period to maturity of the hedged item.
Reinsurance assets and liabilities
Under Ahold's self-insurance program, part of the insurance risk is ceded under a reinsurance treaty, which is a
pooling arrangement between unrelated companies. Reinsurance assets include estimated receivable balances
related to reinsurance contracts purchased by the Company. Reinsurance liabilities represent the expected
insurance risks related to reinsurance contracts sold by the Company. Reinsurance assets and liabilities are
measured on a discounted basis using accepted actuarial methods.
Financial guarantees
Financial guarantees are recognized initially as a liability at fair value. Subsequently, the liability is measured
at the higher of the best estimate of the expenditure required to settle the obligation and the amount initially
recognized less cumulative amortization.
Equity
Equity instruments issued by the Company are recorded at the value of proceeds received. Own equity
instruments that are bought back (treasury shares) are deducted from equity. Incremental costs that are directly
attributable to issuing or buying back own equity instruments are recognized directly in equity, net of the related
tax. No gain or loss is recognized in the income statement on the purchase, sale, issuance or cancellation of
the Company's own equity instruments.
Ahold
Annual Report 2014
Cumulative preferred financing shares
Cumulative preferred financing shares, for which dividend payments are not at the discretion of the Company,
are classified as non-current financial liabilities and are stated at amortized cost. The dividends on these
cumulative preferred financing shares are recognized as interest expense in the income statement, using
the effective interest method. From the date when Ahold receives irrevocable notification from a holder of
cumulative preferred financing shares to convert these shares into common shares, the cumulative preferred
financing shares are classified as a separate class of equity.
The net assets and net liabilities recognized on the consolidated balance sheet for defined benefit plans
represent the actual surplus or deficit in Ahold's defined benefit plans measured as the present value of the
defined benefit obligations less the fair value of plan assets. Any surplus resulting from this calculation is limited
to the present value of available refunds and reductions in future contributions to the plan.
Defined benefit obligations are actuarially calculated on the balance sheet date using the projected unit
credit method. The present value of the defined benefit obligations is determined by discounting the estimated
future cash outflows using market yields on high-quality corporate bonds (i.e., bonds rated AA or higher)
denominated in the currency in which the benefits will be paid, and that have an average duration similar to
the expected duration of the related pension liabilities.
Defined benefit costs are split into three categories:
a Service cost, past service cost, gains and losses on curtailment and settlements
a Net interest expense or income
a Remeasurement
The first category is presented as labor costs within operating earnings. Past-service costs are recognized
in the income statement in the period of plan amendment. Results from curtailments or settlements are
recognized immediately.
Past service years within the Dutch pension fund are calculated based upon a methodology that uses the
maximum past service years based on accrued benefits or a participant's actual date of hire.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset and is
presented within net financial expenses.
Remeasurements, comprising actuarial gains and losses, the effect of the asset ceiling (if applicable) and the
return on plan assets (excluding interest) are recognized immediately in the balance sheet with a charge or
credit to other comprehensive income in the period in which it occurs. Remeasurements recorded in other
comprehensive income are not recycled to the income statement.
Contributions to defined contribution plans are recognized as an expense when employees have rendered
service entitling them to the contributions. Post-employment benefits provided through industry multi-employer
plans, managed by third parties, are generally accounted for under defined contribution criteria.
For other long-term employee benefits, such as long-service awards, provisions are recognized on the basis of
estimates that are consistent with the estimates used for the defined benefit obligations, however discounted