2.8 LEASED ASSETS

On 13 January 2016, the IASB published the new standard IFRS 16 Leases, which replaces IAS 17. This stan- dard was endorsed by the European Union, with its publication on 9 November 2017. IFRS 16 is effective for fi - nancial statements commencing on or after 1 January 2019. The new standard eliminates the difference in the recognition of operating and fi nance leases, even despite elements that simplify its adoption, and introduces the concept of control in the defi nition of a lease. To determine whether a contract is a lease, IFRS 16 establi- shes that the contract must convey the right to control the use of an identifi ed asset for a given period of time.

At the lease commencement date, the Group recognises the right of use asset and lease liability. The right of use asset is initially valued at cost, including the amount of the initial measurement of the lease liability, adjusted for the rent payments made on or be- fore the commencement date, increased by the initial direct costs incurred and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the con- dition required by the terms and conditions of the lease, net of the received lease incentives.

The right of use asset is amortised on a straight-line basis from the commencement date to the end of the lease term, un- less the lease transfers ownership of the underlying asset to the Group at the end of the lease term. In this case, the right of use as- set will be amortised over the useful life of the underlying asset, determined on the same basis as that of property and machinery. In addition, the right of use asset is regularly decreased for any impairment losses and adjusted to reflect any changes deriving from subsequent remeasurement of the lease liability.

The Group values the lease liability at the present value of the payments due for unpaid leases at the commencement date, discounting them using the interest rate implicit in the lease. The payments due for the lease included in the measurement of the lease liability include: fixed payments (including substantially fixed payments); payments due for lease which depend on an index or rate,

initially measured using an index or rate on the commence- ment date;

amounts that are expected to be paid as a residual value guarantee; and

the payments due for the lease in an optional renewal peri- od if the Group is reasonably certain to exercise the renewal option, and early termination cancellation penalties, unless the Group is reasonably certain not to terminate the lease in advance.

The lease liability is measured at amortised cost using the effec- tive interest criterion and remeasured in the event of a change in the future payments due for the lease deriving from a change in the index 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 measurement with reference to the exer- cise or otherwise of a purchase, extension or cancellation option or in the event of revision of in-substance fixed payments due.

When the lease liability is remeasured, the lessee makes a corresponding change in right of use asset. If the right of use as- set carrying value is reduced to zero, the lessee recognises the change in profit/(loss) for the year.

In the statement of financial position, the Group reports right of use assets that do not meet the definition of real estate in- vestments in the item Property, plant and equipment and lease li- abilities in the item Borrowings.

The Group recognises the related payments due for leases as a cost on a straight-line basis over the lease term. For contracts signed before 1 January 2019, the Group establish- es whether the agreement was or contained a lease by checking if: fulfilment of the agreement depended on the use of one or

more specific assets; and the agreement transferred the right to use the asset. Other assets subject to leases is classified as operating leases and is not recognised in the Group s statement of financial posi- tion. Payments relating to operating leases were recognised as a straight-line cost over the lease term, while incentives granted to the lessee were recognised as an integral part of the overall lease cost over the lease term.

Concessions obtained from landlords as a result of the Covid-19 pandemic ( rent concessions ) are accounted for as negative var- iable rents and recognised through profit and loss provided they meet the following conditions: they refer only to reductions in payments due by 30 June

2021; the total of the contractual payments after the rent conces-

sion is substantially equal to or less than the payments en- visaged by the original contract;

no other substantial contractual changes have been agreed with the landlord.

2.9 INVENTORY

Raw materials and work in progress are valued at the lower of purchase or manufacturing cost calculated using the weighted average cost method and net realisable value. The weighted average cost includes directly at- tributable expenditures for raw material inventories and labour cost and an appropriate portion of production overhead based on normal operating capacity.

Provisions are recorded to reduce cost to net realisable value tak- ing into consideration the age and condition of inventory, the like- lihood to use raw materials in the production cycle as well as the saleability of finished products through the Group s distribution channels (outlet and stock).

2.10 FINANCIAL INSTRUMENTS

Trade receivables and debt securities issued are recognised when they are originated. All other fi nancial assets and liabilities are initially recognised at the trade date, i.e., when the Group becomes a contractual party to the fi nancial instrument.

Except for trade receivables that do not comprise a significant fi- nancing component, financial assets are initially measured at fair value plus or minus, in the case of financial assets or liabilities not measured at FVTPL, the transaction costs directly attributable to the acquisition or issue of the financial asset. At the time of ini- tial recognition, trade receivables that do not have a significant fi- nancing component are valued at their transaction price.

On initial recognition, a financial asset is classified based on its valuation: at amortised cost, at fair value through other com- prehensive income (FVOCI) and at fair value through profit/(loss) for the period (FVTPL).

Financial assets are not reclassified after initial recognition, unless the Group changes its business model for managing finan- cial assets. In that case, all the financial assets concerned are re- classified on the first day of the first reporting period following the change in business model. A financial asset shall be measured at amortised cost if both of the following conditions are met and if it is not designated at FVTPL: the financial asset is held as part of a business model whose

objective is to hold the financial assets in order to collect the related contractual cash flows; and

the contractual terms of the financial asset provide for cash flows at certain dates consisting solely of payments of prin- cipal and interest on the amount of principal to be repaid.

At the time of subsequent measurement, assets belonging to this category are valued at amortised cost, using the effective inter- est rate. The effects of measurement are recognised among the fi- nancial income components. These assets are also subject to the impairment model described in the paragraph Trade receivables, financial assets and other current and non-current receivables. A financial asset shall be measured at FVOCI if both of the follow- ing conditions are met and if it is not designated at FVTPL: the financial asset is held as part of a business model whose

objective is achieved both through the collection of the con- tractual cash flows and through the sale of the financial as- sets; and

the contractual terms of the financial asset provide for cash flows at certain dates consisting solely of payments of prin- cipal and interest on the amount of principal to be repaid.

On initial recognition of a security not held for trading, the Group may make an irrevocable choice to present subsequent chang- es in fair value in the other components of the comprehensive in-

CONSOLIDATED FINANCIAL STATEMENTS114 115CONSOLIDATED FINANCIAL STATEMENTS MONCLER GROUP

2021