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Notes to the consolidated financial statements
3 Significant accounting policies (continued)
Ahold at a glance I Business review I Governance I Financials I Investors
At initial recognition, management classifies its financial assets as either (i) at fair value through profit or loss,
(ii) loans and receivables, (iii) held to maturity or (iv) available-for-sale, depending on the purpose for which
the financial assets were acquired. Financial assets are initially recognized at fair value. For instruments not
classified as at fair value through profit or loss, any directly attributable transaction costs are initially recognized
as part of the asset value. Directly attributable transaction costs related to financial assets at fair value through
profit or loss are expensed when incurred.
The fair value of quoted investments is based on current bid prices. If the market for a financial asset is
not active, or if the financial asset represents an unlisted security, the Company establishes fair value using
valuation techniques. These include the use of recent arm's-length transactions, reference to other instruments
that are substantially the same, and discounted cash flow analysis, making maximum use of market inputs.
Subsequent to initial recognition, financial assets are measured as described below. At each balance sheet
date, the Company assesses whether there is objective evidence that a financial asset or a group of financial
assets is impaired.
Investments at fair value through profit or loss
Investments at fair value through profit or loss are those investments that are either held for trading or designated
as such by the Company. A financial asset is classified as held for trading if it is acquired principally for the
purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as
hedges. Financial instruments held for trading are measured at fair value and changes therein are recognized
in the income statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are carried at amortized cost using the effective interest method, less any
impairment losses. They are included in current assets, except for loans and receivables with maturities greater
than 12 months after the balance sheet date.
Held to maturity financial assets
Held to maturity financial assets are non-derivative financial assets with fixed or determinable payments and
a fixed maturity that the Company has the positive intention and ability to hold to maturity. They are carried
at amortized cost using the effective interest method, less any impairment losses. They are included in current
assets, except for held to maturity financial assets with maturities greater than 12 months after the balance
sheet date.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either designated in this category
of financial assets or not classified in any of the other categories. They are measured at fair value based on
quoted market prices with changes therein recognized directly in equity until the investment is derecognized
or determined to be impaired, at which time the cumulative gain or loss previously recorded in equity is
transferred to the income statement. Investments in equity instruments that do not have a quoted market price
and whose fair value cannot be reliably measured are carried at cost. Available-for-sale financial assets are
included in non-current assets unless management intends to dispose of the investment within 12 months after
the balance sheet date.
Ahold
Annual Report 2015
Cash and cash equivalents
Cash and cash equivalents include all cash on hand balances, checks, debit and credit card receivables,
short-term highly liquid cash investments, and time deposits with original maturities of three months or less.
Time deposits and similar instruments with original maturities of more than three months but less than 12 months
are classified as other current financial assets. Bank overdrafts are included in short-term borrowings.
Loans and short-term borrowings
Loans and short-term borrowings are recognized initially at fair value, net of transaction costs incurred.
Loans and short-term borrowings are subsequently stated at amortized cost, unless they are designated as
fair value hedges. Any difference between the proceeds and redemption value is recognized in the income
statement over the period of the loans and short-term borrowings using the effective interest method. Loans are
classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
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.
