Financial statements I Notes to the consolidated financial statements continued
4. Determination of fair values
(i) General
A number of HEINEKEN's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and
liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further
information about the assumptions made in determining fair values or for the purpose of impairment testing is disclosed in the notes specific to that
asset or liability.
(ii) Property, plant and equipment
The fair value of P, P E recognised as a result of a business combination is based on the quoted market prices for similar items when available and
replacement cost when appropriate.
(Hi) Intangible assets
The fair value of brands acquired in a business combination is based on the 'relief of royalty' method. The fair value of customer relationships acquired
in a business combination is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair
return on all other assets that are part of creating the related cash flows. The fair value of other intangible assets is based on the discounted cash
flows expected to be derived from the use and eventual sale of the assets.
(iv) Inventories
The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business
less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.
(v) Investments in equity and debt securities
The fair value of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets is determined
by reference to their quoted closing bid price at the reporting date, or if unquoted, determined using an appropriate valuation technique. The fair
value of held-to-maturity investments is determined for disclosure purposes only. In case the quoted price does not exist at the date of exchange or
in case the quoted price exists at the date of exchange but was not used as the cost, the investments are valued indirectly based on discounted cash
flow models.
(vi) Trade and other receivables
The fair value of trade and other receivables is estimated at the present value of future cash flows, discounted at the market rate of interest at the
reporting date. This fair value is determined for disclosure purposes or when acquired in a business combination.
(vii) Derivative financial instruments
The fair value of derivative financial instruments is based on their listed market price, if available. If a listed market price is not available, then fair value
is in general estimated by discounting the difference between the cash flows based on contractual price and the cash flows based on current price for
the residual maturity of the contract using a risk-free interest rate (based on inter-bank interest rates).
Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and counterparty
when appropriate.
(viii) Non-derivative financial instruments
Fair value, which is determined for disclosure purposes or when fair value hedge accounting is applied, is calculated based on the present value of
future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest
is determined by reference to similar lease agreements.
Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and counterparty
when appropriate.
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Heineken N.V. Annual Report 2011