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Notes to the consolidated financial statements
81
3 Significant accounting policies (continued)
Investments in joint arrangements and associates
Impairment of non-current assets other than goodwill
nventories
Financial instruments
Ahold at a glance I Business review I Governance I Financials I Investors
Customer relationships acquired in business acquisitions are stated at fair value determined using an income
approach. Direct costs related to the development of software for internal use are capitalized only if the
costs can be measured reliably, technological feasibility has been established, future economic benefits
are probable, and the Company intends to complete development and to use the software. All other costs,
including all overhead, general and administrative, and training costs, are expensed as incurred. Lease-related
intangible assets, consisting primarily of favorable operating lease contracts acquired in business acquisitions,
are measured at the present value of the amount by which the contract terms are favorable relative to market
prices at the date of acquisition.
Amortization is computed using the straight-line method based on estimated useful lives, which are as follows:
Customer relationships
7-25 years
Software
3-10 years
Lease-related intangibles
remaining expected duration of the lease
Brand names
indefinite
Other
5-indefinite
The useful lives are reviewed at each balance sheet date and adjusted, if appropriate.
Investments in joint arrangements are classified as either joint operations or joint ventures depending on the
contractual rights and obligations each investor has rather than the legal structure of the joint arrangement.
Joint operations arise where Ahold has rights to the assets and obligations relating to the arrangement and
therefore accounts for its share of assets, liabilities, revenue and expenses. Joint ventures arise where Ahold has
rights to the net assets of the arrangement and therefore equity accounts for its interest.
Associates are entities over which Ahold has significant influence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. Significant influence is the power to participate in
the financial and operating policy decisions of the entity but is not control or joint control over those policies.
Associates are accounted for using the equity method.
Under the equity method, investments in joint ventures and associates are measured initially at cost and
subsequently adjusted for post-acquisition changes in Ahold's share of the net assets of the investment (net of
any accumulated impairment in the value of individual investments). Where necessary, adjustments are made
to the financial figures of joint ventures and associates to ensure consistency with the accounting policies of
the Company,
Unrealized gains on transactions between Ahold and its joint ventures and associates are eliminated to
the extent of Ahold's stake in these investments. Unrealized losses are also eliminated unless the transaction
provides evidence of an impairment of the assets transferred.
Ahold
Annual Report 2015
Ahold assesses on a quarterly basis whether there is any indication that non-current assets may be impaired.
If indicators of impairment exist, Ahold estimates the recoverable amount of the asset. If it is not possible
to estimate the recoverable amount of an individual asset, Ahold estimates the recoverable amount of the
cash-generating unit to which it belongs. Individual stores are considered separate cash-generating units for
impairment testing purposes.
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 location and condition ready for sale,
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 first-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 canceled. 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),
