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Notes to the consolidated financial statements
77
2 Basis of preparation (continued)
Fair value measurements
3 Significant accounting policies
Consolidation
Foreign currency translation
Ahold at a glance I Business review I Governance I Financials I Investors
Provisions and contingencies (Notes 3, 24 and 34
The recognition of provisions requires estimates and judgment regarding the timing and the amount of outflow
of resources. The main estimates are as follows:
a Self-insurance program: estimates and assumptions include an estimate of claims incurred but not yet
reported, historical loss experience, projected loss development factors, estimated changes in claim
reporting patterns, claim settlement patterns, judicial decisions and legislation.
a Loyalty programs: estimated cost of benefits to which customers participating in the loyalty program are
entitled, which includes assumptions on redemption rates. These estimates and assumptions apply to all
loyalty programs, irrespective of whether they are accounted for as sales deferrals or provisions for future
payments made at redemption.
a Claims and legal disputes: management, supported by internal and external legal counsel, where
appropriate, determines whether it is more likely than not that an outflow of resources will be required to
settle an obligation. If this is the case, the best estimate of the outflow of resources is recognized.
a Severance and termination benefits: the provisions relate to separation plans and agreements and use 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
such contracts.
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
Company 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.
Ahold
Annual Report 2015
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. Ahold does not have subsidiaries with
non-controlling interests that are material to the Group.
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
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.
