Notes to the
consolidated
financial statements
continued
3 Significant accounting policies continued
Overview
Business review
Governance
Financials
Investors
Ahold Delhaize Annual Report 2016
Investments in joint arrangements and associates
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 Delhaize has rights to the assets
and obligations relating to the arrangement and therefore the Company accounts for its share of assets, liabilities, revenue and expenses.
Joint ventures arise where Ahold Delhaize has rights to the net assets of the arrangement and therefore the Company equity accounts for
its interest.
Associates are entities over which Ahold Delhaize 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.
Impairment of non-current assets other than goodwill
Ahold Delhaize assesses on a quarterly basis whether there is any indication that non-current assets may be impaired. If indicators of impairment
exist, the Company estimates the recoverable amount of the asset. If it is not possible to estimate the recoverable amount of an individual asset,
the Company 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.
Unrealized gains on transactions between Ahold Delhaize and its joint ventures and associates are eliminated to the extent of the Company’s
stake in these investments. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the
assets transferred.
The recoverable amount is the higher of an asset’s fair value less cost to sell or 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 reflects 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 Delhaize 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.
Under the equity method, investments in joint ventures and associates are measured initially at cost and subsequently adjusted for post
acquisition changes in Ahold Delhaize’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.
Inventories
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.
