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Notes to the consolidated financial statements
3 Significant accounting policies (continued)
Investment property
Leases and sale and leaseback transactions
Intangible assets
Ahold at a glance I Business review I Governance I Financials I Investors
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
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.
Ahold
Annual Report 2015
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
buyer. The leaseback of the Ahold store and any gain on the sale of the Ahold store is accounted for under
the sale and leaseback criteria described above.
In some sale and leaseback arrangements, Ahold subleases the property to third parties (including franchisees)
or maintains a form of continuing involvement in the property sold, such as earn-out provisions or obligations
or options to repurchase the property. In such situations, the transaction generally does not qualify for sale and
leaseback accounting, but rather is accounted for as a financing transaction (financing). The carrying amount
of the asset remains on the balance sheet and the sale proceeds are recorded as a financing obligation.
The financing obligation is amortized over the lease term. Once Ahold's continuing involvement ends, the sale
is accounted for under the sale and leaseback criteria described above.
Goodwill and impairment of goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred
over the Company's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities at
the date of acquisition, and is carried at cost less accumulated impairment losses. Goodwill on acquisitions of
joint ventures and associates is included in the carrying amount of the investment.
For the purposes of impairment testing, goodwill is allocated to each of the cash-generating units (or groups
of cash-generating units) that is expected to benefit from the synergies of a business combination. Goodwill is
allocated to a cash-generating unit (or group of cash-generating units) representing the lowest level within the
Company at which the goodwill is monitored for internal management purposes and is never larger than
an operating segment before aggregation. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication that the cash-generating unit
may be impaired. Goodwill on acquisitions of joint ventures and associates is assessed for impairment as
part of the investment whenever there is an indication that the investment may be impaired. An impairment
loss is recognized for the amount by which the cash-generating unit's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of a cash-generating unit's fair value less cost to sell and its
value in use. An impairment loss is allocated first to reduce the carrying amount of the goodwill and then to the
other assets of the cash-generating unit pro-rata on the basis of the carrying amount of each asset in the cash-
generating unit. An impairment loss recognized for goodwill is not reversed in subsequent periods.
On the partial or complete disposal of an operation, the goodwill attributable to that operation is included in
the determination of the gain or loss on disposal.
Other intangible assets
Separately acquired intangible assets and internally developed software are carried at cost less accumulated
amortization and impairment losses. Intangible assets acquired in a business combination are recognized at
fair value at the date of acquisition (which is regarded as their cost).
