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Notes to the consolidated financial statements
78
3 Significant accounting policies (continued)
Segmentation
Net sales
Cost of sales
Vendor allowances
Selling expenses
General and administrative expenses
Share-based compensation
Ahold at a glance I Business review I Governance I Financials I Investors
Ahold's operating segments are its retail operating companies that engage in business activities from
which they earn revenues and incur expenses and whose operating results are regularly reviewed by
the Management Board to make decisions about resources to be allocated to the segments and to
assess their performance. In establishing the reportable segments, certain operating segments with similar
economic characteristics have been aggregated. As Ahold's operating segments offer similar products using
complementary business models, and there is no discernible difference in customer bases, Ahold's policy on
aggregating its operating segments into reportable segments is based on geography and functional currency.
The segments' performance is evaluated against several measures, of which operating income is the most
important. Intersegment sales are executed under normal commercial terms and conditions that would also
be available to unrelated third parties. Net sales are attributed to geographic regions based on the location
of stores.
Ahold generates and recognizes net sales to retail customers at the point of sale in its stores and upon
delivery of goods through its online channel. Ahold also generates revenues from the sale of products to
retail franchisees that are recognized upon delivery. Ahold recognizes franchise fees as revenue when all
material services relating to the contract have been substantially performed. Revenue from the sale of gift cards
and gift certificates is recognized when the gift card or gift certificate is redeemed by the retail customer.
Future discounts earned by customers in connection with bonus or loyalty cards and other company-sponsored
programs are deferred on the balance sheet at the time of the sale and subsequently recognized in the income
statement when redeemed.
Generally, net sales and cost of sales are recorded based on the gross amount received from the customer for
products sold and the amount paid to the vendor for products purchased, excluding sales taxes and value-
added taxes. However, for certain products or services, such as sales through its online Plaza platform, the
sale of lottery tickets, third-party prepaid phone cards, stamps and public transportation tickets, Ahold acts as
an agent and consequently records the amount of commission income in its net sales.
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
Annual Report 2015
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
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.