107 COnSOLIdATed FInAnCIAL STATeMenTS106 COnSOLIdATed FInAnCIAL STATeMenTS MONCLER GROUP 2023

2.9 INVENTORY

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

Provisions are recorded to reduce cost to net realisable val- ue taking into consideration the age and condition of inventory, the likelihood 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 financial assets and liabilities are ini- tially recognised at the trade date, i.e., when the Group becomes a contractual party to the financial instrument.

except for trade receivables that do not comprise a signifi- cant financing 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 initial recognition, trade receivables that do not have a significant financ- ing 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 compre- hensive 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 princi- pal 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, fi- nancial assets and other current and non-current receivables.

A financial asset shall be measured at FVOCI 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 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 princi- pal 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 changes in fair value in the other components of the comprehensive income statement. This choice is made for each asset.

At the time of subsequent measurement, the measurement made at the time of recognition is updated and any changes in fair value are recognised in the statement of comprehensive income. As for the category above, these assets are subject to the impair- ment model described in the paragraph Trade receivables, financial assets and other current and non-current receivables.

All financial assets not classified as valued at amortised cost or at FVOCI, as indicated above, are valued at FVTPL. All derivative finan- cial instruments are included. On initial recognition, the Group may irrevocably designate the financial asset as measured at fair value through profit/(loss) for the period if this eliminates or significantly reduces a misalignment in accounting that would otherwise result from measuring the financial asset at amortised cost or at FVOCI.

At the time of subsequent measurement, financial assets measured at FVTPL are valued at fair value. Gains or losses aris- ing from changes in fair value are recognised in the consolidated in- come statement in the period in which they are recognised under financial income/expenses.

Financial assets are derecognised from the financial state- ments when the contractual rights to receive cash flows from them expire, when the contractual rights to receive cash flows from a trans- action in which all the risks and rewards of ownership of the financial asset are materially transferred or when the Group neither transfers nor retains materially all the risks and rewards of ownership of the fi- nancial asset and does not retain control of the financial asset.

Financial liabilities are classified as valued at amortised cost or at FVTPL. A financial liability is classified at FVTPL when it is held for trading, it represents a derivative or is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and any changes, including interest expense, are recognised in profit or loss for the period. Other financial liabilities are measured at amortised cost using the effective interest method. Interest ex- pense and exchange rate gains/(losses) are recognised in profit/ (loss) for the period, as are any gains or losses from derecognition.

The Group s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, oth- er current and non-current assets and liabilities, investments, bor- rowings and derivative financial instruments.

CASH And CASH eQUIVALenTS Cash and cash equivalents include cash and short-term deposits held with banks and most liquid assets that are readily convertible into cash and that have insignificant risk of change in value. Bank overdrafts are recorded under current liabilities on the Group s con- solidated statement of financial position.

TRAde ReCeIVABLeS, FInAnCIAL ASSeTS And OTHeR CURRenT And nOn-CURRenT ReCeIVABLeS Trade and other receivables, generated when the Group provides money, goods or services directly to a third party, are classified as current assets, except for items with maturity dates greater than twelve months after the reporting date.

Current and non-current financial assets, other current and non-current assets, trade receivables, excluding derivatives, with fixed maturity or determinable payment terms, are recognised at am- ortised cost calculated using the effective interest method. When fi- nancial assets do not have a fixed maturity, they are valued at cost. notes receivable (due date greater than a year) with interest rate be- low that of the market rate are valued using the current market rate.

The financial assets listed above are valued based on the im- pairment model introduced by IFRS 9 or by adopting an expect- ed loss model, replacing the IAS 39 framework, which is typically based on the valuation of the incurred loss.

For trade receivables, the Group adopts the so-called sim- plified approach, which does not require the recognition of period- ic changes in credit risk, but rather the accounting of an expected Credit Loss ( eCL ) calculated over the entire life of the credit (so- called lifetime eCL).

In particular, the policy implemented by the Group provides for the stratification of trade receivables based on the days past due and an assessment of the solvency of the counterparty and applies different write-down rates that reflect the relative expec- tations of recovery. The Group then applies an analytical valuation of impaired receivables based on a debtor s reliability and ability to pay the due amounts.

The value of receivables is shown in the statement of finan- cial position net of the related bad debt provision. Write-downs, made in accordance with IFRS 9, are recognised in the consolidat- ed income statement net of any positive effects associated with re- versals of impairment.