Notes to the consolidated financial statements continued
4. Determination of fair values
General
A number of H EINEKEN'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.
Fair value as a result of business combinations
(i) 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.
(ii) Intangible assets
The fair value of brands acquired in a business combination is based on the 'relief of royalty' method or determined using the multi-period excess
earnings 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 reacquired rights and other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale
of the assets.
(Hi) 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.
(iv) 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.
Fair value from general business operations
(i) 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.
(ii) 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 include the instrument's credit risk and adjustments to take account of the credit risk of the Group entity and counterparty when appropriate.
(iii) 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 include the instrument's credit risk and 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 2012