MONCLER ANNUAL REPORT AT 31 DECEMBER 2020CONSOLIDATED FINANCIAL STATEMENTS 9594

Japan Region; Korea Region. The «rights-of-use» of each individual CGU is subject to im- pairment tests in the presence of triggering events (for the individual CGU) identified by a possible impairment and sig- nalled by the following key performance indicators: divestment plans; below expectation performance indicators; operational losses. The impairment test is carried out with the following methods: calculation of the CGU s gross value in use, excluding that

related to the lease liability from cash flows; calculation of the CGU s recoverable amount, by deduct-

ing the carrying value of the lease liability from the gross value in use;

comparison of the CGU s recoverable value with the car- rying value, the latter calculated net of the carrying value of the lease liability.

In calculating the value in use, the discount rate used is the WACC for the geographical area to which it belongs, the ag- gregate value of which determines the Group WACC.

2.8. LEASED ASSETS

On 13 January 2016, the IASB published the new standard IFRS 16 Leases, which replaces IAS 17. This standard was endorsed by the European Union, with its publication on 9 November 2017. IFRS 16 is effective for financial statements commencing on or after 1 January 2019. The new standard eliminates the difference in the recognition of operating and finance leases, even despite elements that simplify its adoption, and intro- duces the concept of control in the definition of a lease. To determine whether a contract is a lease, IFRS 16 establishes that the contract must convey the right to control the use of an identified 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 meas- urement of the lease liability, adjusted for the rent payments made on or before the commencement date, increased by the initial direct costs incurred and an estimate of costs to be in- curred by the lessee in dismantling and removing the underly- ing asset, restoring the site on which it is located or restoring the underlying asset to the condition 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, unless 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 asset will be amortised over the useful life of the under- lying 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 com- mencement date;

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

the payments due for the lease in an optional renewal period if the Group is reasonably certain to exercise the renewal option, and early termination cancellation penal- ties, unless the Group is reasonably certain not to termi- nate the lease in advance.

The lease liability is measured at amortised cost using the effective 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 exercise or otherwise of a purchase, ex- tension 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 asset 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 es- tate investments in the item Property, plant and equipment and lease liabilities 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 estab- lishes 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 po- sition. 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 variable 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 con-

cession is substantially equal to or less than the payments envisaged 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 av- erage cost includes directly attributable 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 taking into consideration the age and condition of in- ventory, 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 liabil- ities are initially 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 signif- icant financing component, financial assets are initially meas- ured at fair value plus or minus, in the case of financial assets or liabilities not measured at FVTPL, the transaction costs di- rectly attributable to the acquisition or issue of the financial asset. At the time of initial recognition, trade receivables that do not have a significant financing 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 comprehensive income (FVOCI) and at fair value through prof- it/(loss) for the period (FVTPL).

Financial assets are not reclassified after initial recogni- tion, unless the Group changes its business model for manag- ing financial assets. In that case, all the financial assets con- cerned are reclassified 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 principal 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 effec- tive interest rate. The effects of measurement are recognised among the financial income components. These assets are also subject to the impairment model described in the par- agraph Trade receivables, financial assets and other current and non-current receivables. A financial asset shall be measured at FVOCI if both of the fol- lowing 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 contractual cash flows and through the sale of the financial assets; and

the contractual terms of the financial asset provide for cash flows at certain dates consisting solely of payments of principal 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 compre- hensive income statement. This choice is made for each asset.

At the time of subsequent measurement, the measure- ment made at the time of recognition is updated and any changes in fair value are recognised in the statement of com- prehensive income. As for the category above, these assets are subject to the impairment model described in the para- graph 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 financial instruments are included. On initial rec- ognition, the Group may irrevocably designate the financial asset as measured at fair value through profit/(loss) for the pe- riod 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 arising from changes in fair value are recognised in the con- solidated income statement in the period in which they are recognised under financial income/expenses.

Financial assets are derecognised from the financial statements when the contractual rights to receive cash flows from them expire, when the contractual rights to receive cash flows from a transaction 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 financial 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 des- ignated 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 peri- od. Other financial liabilities are measured at amortised cost using the effective interest method. Interest expense and ex- change 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 paya- ble, other current and non-current assets and liabilities, invest- ments, borrowings and derivative financial instruments.

CASH AND CASH EQUIVALENTS

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