Notes to the
consolidated
financial statements
continued
3 Significant accounting policies continued
Overview
Business review
Governance
Financials
Investors
Ahold Delhaize Annual Report 2016
Net sales
Ahold Delhaize 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. The Company also generates revenues from the sale of products to retail franchisees and affiliates that are recognized upon delivery.
Ahold Delhaize recognizes fees to franchisees and affiliates as revenue as services are performed or the granted rights are used. 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.
Vendor allowances
Ahold Delhaize 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 Delhaize 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.
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 bol.com’s seller platform, the sale of lottery tickets, third-party prepaid phone cards, stamps and public transportation tickets, Ahold
Delhaize acts as an agent and consequently records the amount of commission income in its net sales.
Cost of 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.
The accounting for vendor allowances requires a number of estimates. First, the Company must estimate the allowances that are earned based on
the fulfillment 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
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
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.
