Notes to the
consolidated
financial statements
continued
2 Basis of preparation continued
Overview
Business review
Governance
Financials
Investors
Ahold Delhaize Annual Report 2016
Revenue recognition with respect to sale and leaseback transactions is dependent on management’s judgment of whether the Company
transfers all risks and rewards to the buyer, does not maintain (or maintains only minor) continuing involvement in the property other than the lease
payments and whether the transaction is established at fair value.
Impairments (Notes3,8, II, 12and I3)
Judgments and estimates are required, not only to determine whether there is an indication that an asset may be impaired, but also whether
indications exist that impairment losses previously recognized may no longer exist or may have decreased (impairment reversal).
Fair value measurements
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:
Company and multi-employer pension obligations (Notes 3 and 23)
The present value of the pension obligations depends on a number of assumptions that are determined on an actuarial basis. The assumptions
used in determining the net cost (income) for pensions include the discount rate that should be used to determine the present value of estimated
future cash outflows expected to be required to settle the pension obligations. Other key assumptions comprise longevity and future salary and
pension increases. Additional information is disclosed in Note 23.
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:
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.
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.
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.
Severance and termination benefits: the provisions relate to separation plans and agreements and use the best estimate based on information
available to management of the cash flows that will likely occur. The amounts that are ultimately incurred may change as the plans are executed.
Onerous contracts: mainly relate to unfavorable lease contracts and include the excess of the unavoidable costs of meeting the contractual
obligations over the benefits expected to be received under such contracts.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the
measurement date.
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e., as prices)
or indirectly (i.e., derived from prices).
Level 3 inputs are unobservable inputs for the asset or liability.
