ALLOWANCE FOR RETURNS The allowance for returns reflects management s best estimate of the asset arising from expected product returns and the associat- ed liability for future refunds.

IMPAIRMENT OF INVENTORY The Group manufactures and sells mainly clothing goods that are subject to changing consumer needs and fashion trends. As a re- sult, it is necessary to consider the recoverability of the cost of inventories and the related required provision. Inventory impair- ment represents management s best estimate for losses arising from the sales of aged products, taking into consideration their saleability through the Group s distribution channels.

RECOVERABILITY OF DEFERRED TAX ASSETS The Group is subject to income taxes in numerous jurisdictions. Judgment is required in determining the provision for income taxes in each territory. The Group recognises deferred tax assets when it is expected that they will be realised within a period that is consistent with management estimates and business plans.

PROVISION FOR LOSSES AND CONTINGENT LIABILITIES The Group could be subject to legal and tax litigations arising in the countries where it operates. Litigation is inevitably subject to risk and uncertainties surrounding the events and circumstanc- es associated with the claims and associated with local legislation and jurisdiction. In the normal course of business, management requests advice from the Group legal consultants and tax ex- perts. The recognition of a provision is based on management s best estimate when an outflow of resources is probable to settle the obligation and the amount can be reliably estimated. In those circumstances where the outflow of resources is possible or the amount of the obligation cannot be reliably measured, the contin- gent liabilities are disclosed in the notes to Consolidated Finan- cial Statements.

LEASE LIABILITIES AND RIGHT OF USE ASSETS The Group recognises the right of use asset and the liability for the lease. The right of use asset is initially valued at cost, and then subsequently at cost net of accumulated depreciation and impair- ment losses, and adjusted to reflect the revaluation of the lease li- ability.

The Group values the lease liability at the present value of the payments due for unpaid leases at the effective date, dis- counting them using the interest rate determined taking into ac- count the term of the lease contracts, the currency in which they are denominated, the characteristics of the economic environ- ment in which the contract was stipulated and the credit adjust- ment.

The lease liability is subsequently increased by the interest accrued on this liability and decreased by the payments due for the lease made and is revalued in the event of a change in the fu- ture payments due for the lease deriving from a change in the in- dex or rate, in the event of a change in the amount that the Group expects to pay as a guarantee on the residual value or when the Group changes its valuation with reference to the exercise or oth- erwise of a purchase, extension or cancellation option.

Lease contracts in which the Group acts as a lessee may provide for renewal options with effects, therefore, on the duration of the contract. Relative certainty that this option will (or won t) be exercised can influence, even significantly, the amount of lease li- abilities and right of use assets.

INCENTIVE SYSTEMS AND VARIABLE REMUNERATION For the description of the determination of the fair value of share- based incentive payments for the Moncler Group management, please see paragraph 2.13.

For an estimate of financial liabilities related to the pur- chase of minority interests and IFRIC 23: uncertainty over income tax treatments see paragraphs 2.20 and 2.16.

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES USED IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

The accounting principles set out below have been applied consistently for fi scal year 2021 and the prior year.

2.1 BASIS OF CONSOLIDATION

The Consolidated Financial Statements comprise those of the Parent Company and its subsidiaries, of which the Parent owns, directly or indirectly, a majority of the voting rights and over which it exercises control, or from which it is able to benefi t by virtue of its power to govern the subsidiaries fi nancial and operating policies.

The financial results of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent ac- counting policies.

Subsidiaries are consolidated from the date on which con- trol is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where the Group loses control of a subsidiary, the Consolidated Finan- cial Statements include the results for the portion of the reporting period during which the Parent Company had control. In the Con- solidated Financial Statements, non-controlling interests are pre- sented separately within equity and in the statement of income. Changes in the parent s ownership interest, that do not result in a loss of control or changes that represent acquisition of non-con- trolling interests after the control has been obtained, are account- ed for as changes in equity.

In preparing the Consolidated Financial Statements, the ef- fects, the balances as well as the unrealised profit or loss recog- nised in assets resulting from intra-group transactions are fully eliminated.

INVESTMENTS IN ASSOCIATES Investments in associates are accounted for using the equity method whereas the initial recognition is stated at acquisition cost and adjusted thereafter for the post-acquisition change in the in- vestor s share of net assets. On acquisition of the investment any difference between the cost of the investment and the investor s share of the net fair value of the associate s assets and liabilities is included in the carrying amount of the investment. If the inves- tor s share of losses of the associate equals or exceeds its interest in the associate, the investor s interest is reduced to zero and ad- ditional losses are provided for and a liability is recognised to the extent that the investor has incurred a legal obligation or has the intention to make payments on behalf of the associate.

2.2 FOREIGN CURRENCY

Items included in the fi nancial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency).

TRANSACTIONS IN FOREIGN CURRENCIES Foreign currency transactions are recorded by applying the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies, which are held at year-end, are translated into the functional currency at the ex- change rate ruling at the reporting date. Exchange differences arising on the settlement on the translation of monetary transac- tions at a rate different from those at which they were translated at initial recognition are recognised in the consolidated income statement in the period in which they arise.

CONSOLIDATED FINANCIAL STATEMENTS108 109CONSOLIDATED FINANCIAL STATEMENTS MONCLER GROUP

2021