Notes to the consolidated financial statements continued
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4. Determination of fair values
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.
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 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 cashflows. 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.
(iii) 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 normal business
(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,
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 contact using observable interest yield curves, basis spread and foreign exchange rates.
Fair values include the instrument's credit risk and adjustments to take account of the credit risk of the HEIN EKEN 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 HEIN EKEN entity and counterparty
when appropriate.
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Heineken N.V. Annual Report 2014