99 CONSOLIDATED FINANCIAL STATEMENTS98 CONSOLIDATED FINANCIAL STATEMENTS MONCLER GROUP 2022

subject to changing consumer needs and fashion trends. As a re- sult, it is necessary to consider the recoverability of the cost of in- ventories and the related required provision. Inventory impairment 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 consis- tent 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 circumstances asso- ciated with the claims and associated with local legislation and ju- risdiction. In the normal course of business, management requests advice from the Group legal consultants and tax experts. The rec- ognition 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 ob- ligation cannot be reliably measured, the contingent liabilities are disclosed in the notes to Consolidated Financial 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 sub- sequently at cost net of accumulated depreciation and impairment losses, and adjusted to reflect the revaluation of the lease liability.

The Group values the lease liability at the present value of the payments due for unpaid leases at the effective date, discount- ing them using the interest rate determined taking into account the term of the lease contracts, the currency in which they are denom- inated, the characteristics of the economic environment in which the contract was stipulated and the credit adjustment.

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 index or rate, in the event of a change in the amount that the Group ex- pects to pay as a guarantee on the residual value or when the Group changes its valuation with reference to the exercise or otherwise of a purchase, extension or cancellation option.

Lease contracts in which the Group acts as a lessee may pro- vide for renewal options with effects, therefore, on the duration of the contract. Relative certainty that this option will (or won t) be ex- ercised can influence, even significantly, the amount of lease liabil- ities 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.

IAS 29 HYPERINFLATION Furthermore, IAS 29, which was irrelevant on 31 December 2021 as no Group company was operating on hyperinflationary markets on that date, should have been applied for the Turkish subsidiary as at 31 December 2022, because Turkey met the criteria for a hyperinfla- tionary economy during the year. However, the accounting effects of applying that accounting standard are not significant and thus have not been considered in the preparation of this Annual Report.

For an estimate of financial liabilities related to the purchase of mi- nority interests and IFRIC 23: uncertainty over income tax treat- ments see paragraphs 2.20 and 2.16.

The accounting principles set out below have been applied consis- tently for fiscal year 2022 and the prior year.

2.1 BASIS OF CONSOLIDATION

The Consolidated Financial Statements comprise those of the Par- ent Company and its subsidiaries, of which the Parent owns, di- rectly or indirectly, a majority of the voting rights and over which it exercises control, or from which it is able to benefit by virtue of its power to govern the subsidiaries financial 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 effects, the balances as well as the unrealised profit or loss rec- ognised in assets resulting from intra-group transactions are ful- ly eliminated.

INVESTMENTS IN ASSOCIATES Investments in associates are accounted for using the equity meth- od whereas the initial recognition is stated at acquisition cost and adjusted thereafter for the post-acquisition change in the investor s share of net assets. On acquisition of the investment any differ- ence between the cost of the investment and the investor s share of the net fair value of the associate s assets and liabilities is includ- ed in the carrying amount of the investment. If the investor s share of losses of the associate equals or exceeds its interest in the asso- ciate, the investor s interest is reduced to zero and additional loss- es 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 financial 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 exchange rate ruling at the reporting date. Exchange differences arising on the settlement on the translation of monetary transactions at a rate different from those at which they were translated at initial recog- nition are recognised in the consolidated income statement in the period in which they arise.

TRANSLATION OF THE RESULTS OF OVERSEAS BUSINESSES Assets and liabilities of overseas subsidiaries included in the Con- solidated Financial Statements are translated into the Group s reporting currency of Euros at the exchange rate ruling at the re- porting date. Income and expenses are translated at the average exchange rate for the reporting period, as it is considered to ap- proximate at best the actual exchange rate at the transaction date. Differences arising on the adoption of this method are recognised separately in other comprehensive income and are presented in a separate component of equity as translation reserve until disposal of the foreign operation. Goodwill and fair value adjustments arising

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