Food Lion 2004 Annual Report Download - page 45

DELHAIZE GROUP  ANNUAL REPORT 2004 43
1. Basis of Preparation and Accounting Policies
1. Principle of Consolidation
Full Consolidation
Companies over which control is exercised by right or de facto are fully
consolidated.
Proportionate Consolidation
Companies over which joint control is exercised are consolidated propor-
tionately.
Equity M ethod
Companies on which the Group has a significant influence, particularly by
owning voting rights betw een 10 and 50%, are accounted for by the equity
method.
Companies to which these Criteria are not Applied:
• Companies w hich have ceased trading or whose results are not signifi-
cant to the Group, individually and in aggregate, are excluded from the
scope of consolidation.
• Companies w hose activity is fundamentally different from those of the
Group and w hich are not significant in terms of the Group, individually
and in aggregate, are also excluded.
2. Group Accounting Policies
The Group accounting policies are based on those of the parent company.
The accounts of consolidated subsidiaries are restated as necessary in
order to comply w ith the accounting policies stated below, w here such
restatement has a significant effect on the consolidated accounts taken
as a w hole.
Establishment Costs
These costs are capitalized only by decision of the Board of Directors.
When capitalized, they are depreciated over a period of five years or, if they
relate to debt issuance costs, the period of the loans.
Intangible Fixed Assets
The intangible fixed assets appearing on the balance sheet are amortized
on the basis of the economic life of the assets in question. The amortization
periods of the main intangible assets are as follow s :
Concessions, patents, licences
• Trade names 40 years
• Distribution network 40 years
• Assembled workforce 2-13 years
• Prescription files 15 years
Goodwill
• Favorable lease rights lease term
Goodwill Arising on Consolidation
Goodwill arising on consolidation of the accounts of a company on entry
within the scope of consolidation, or when the holding percentage in a
company is modified, is allocated, to the extent possible, to the assets and
liabilities of the company concerned. The unallocated difference appears in
the balance sheet as “ Goodw ill arising on consolidation” .
The amounts allocated to assets are amortized on the basis of their
nature. The amounts recorded as “ Goodwill arising on consolidation” are
amortized, as a rule, over a period of 20 or 40 years, given the nature of
the sector which provides a steady and non-cyclical return. The choice
of rate depends on the country where the investment is made: 40 years
for countries w ith a mature economy and 20 years for countries with an
emerging economy.
Tangible Fixed Assets
Tangible fixed assets are recorded in the balance sheet at purchase price,
at cost price or at agreed capital contribution value.
Depreciation is based on the economic life of the assets in question, as
a rule :
• Buildings 40 years
• Distribution centers 33 years
• Plant, machinery and equipment 3-14 years
• Furniture, vehicles and other tangible fixed assets 5-10 years
Ancillary costs related to buildings are either allocated to the asset and
depreciated over the same period as the asset in question, or w ritten off
as incurred.
Capital leases and similar contract rights are depreciated based upon the
estimated useful life of the assets, which may be different from the repay-
ment of the capital value of the assets.
Financial Fixed Assets
Investments included in “ Companies at equity” appear at the value of the
Group share in the equity of the companies in question. Other investments
are included at cost, less any provision required to reflect a long-term
impairment of value.
Inventories
Inventories are valued at the lower of cost on a w eighted average cost
basis or net realizable value. Inventories are written down on a case-
by-case basis if the anticipated net realizable value declines below the
carrying amount of the inventories. Such net realizable value corresponds
to the anticipated estimated selling price less the estimated costs neces-
sary to make the sale. When the reason for a write-dow n of the inventories
has ceased to exist, the w rite-down is reversed.
Receivables and Payables
Amounts receivable and payable are recorded at their nominal value,
less provision for any amount receivable w hose value is considered to be
impaired on a long-term basis. Amounts receivable and payable in a cur-
rency other than the currency of the subsidiary are valued at the exchange
rate on the closing date. The resulting translation difference on conversion
(for each currency) is written off if it is a loss and deferred if it is a gain.
Exchange gains and losses and conversion differences arising on debts
contracted to finance non-monetary assets are recognized based on the
principle of matching expenses to the income to which they relate.
Provisions and Deferred Taxes
Provisions for liabilities and charges are recorded to cover probable or
certain losses of precisely determined nature but whose amount, as at the
balance sheet date, is not precisely know n. They include, principally:
• pension obligations, early retirement benefits and similar benefits due by
consolidated companies to present or past members of staff;
• taxation due on review of taxable income or tax calculations not already
included in the estimated tax payable included in amounts due w ithin
one year;
• significant reorganization and store closing costs;
• self-insurance reserves for w orkers’ compensation, general liability,
vehicle accident and druggist claims;
• charges for which the company may be liable as a result of current
litigation.
Deferred taxes are calculated using the liability method on a full provision
basis, taking into account temporary differences betw een book and tax
values of assets and liabilities in the consolidated balance sheet. Deferred
taxes have two sources: temporary differences in the accounts of Group
companies and consolidation adjustments.
NOTES TO THE FINANCIAL STATEMENTS