L'Oréal - 2018 Registration Document

4 2018 Consolidated Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

These estimates and assumptions mainly concern the measurement of goodwill and other intangible assets, provisions, pension obligations, deferred taxes and share-based payment. Estimates used by the Group in relation to these different areas are made on the basis of information available at the date the accounts are prepared and described in detail in each specific associated note.

the possibility of deferring recognition of the time value of s currency options in equity in the same way as for forward hedges, so as to only impact income at the date the hedged transactions occur. The impact of this new accounting policy regarding the time value of options on income in comparative periods was not deemed material. As a result, they were not restated. This change resulted in a reclassification in opening equity at 1 January 2016 of €10.0 million from Retained earnings and net profit to Other comprehensive income, at 1 January 2017 of €10.3 million from Retained earnings and net profit to Other comprehensive income and at 1 January 2018 of €9.6 million from Retained earnings and net profit to Other comprehensive income . The current trade accounts receivable impairment methodology at L’Oréal reflects the level of expected losses on the customer portfolio, calculated on the basis of past statistics from the outset of the receivable. Moreover, this risk is contained thanks to the credit insurance policy applied by the Group. As a result, the application of IFRS 9 in this area has no impact on the Group's financial statements. Change in accounting policy applied at 1 January 2018: IFRS 15 Revenue from Contracts with Customers This standard came into effect on 1 January 2018. The main change identified concerns the Group's relationships with distributors with respect to which the view was taken that the distributor acted as agent and not as principal. Sales are now recognised upon sale of products to the end customer. The standard is applied retrospectively by recognising the cumulative effect of the initial application in equity on 1 January 2018. The impact of this new accounting policy is not material on the income statement and in 2018 resulted in a €28.2 million increase in sales, offset by a corresponding increase in expenses. This change resulted in a €12.9 million reduction in equity, offset by a €5.2 million increase in inventories, a €1.7 million increase in deferred assets and €19.8 million in other liabilities. Use of estimates 1.1. The preparation of the consolidated financial statements in accordance with international accounting standards requires that the Group make a certain number of estimates and assumptions that may affect the value of the Group’s assets, liabilities, equity and net profit (loss).

Scope and methods 1.2. of consolidation

All companies included in the scope of consolidation have a financial year ending 31 December or close their accounts on that date. All companies directly or indirectly controlled by the parent company L’Oréal have been fully consolidated. Group companies that are jointly controlled by the parent company and a limited number of other shareholders under a contractual agreement have been accounted for by the equity method in accordance with IFRS 11. Associates over which the Group has a significant influence have been accounted for by the equity method. The assets and liabilities of foreign subsidiaries are translated at closing exchange rates. Income statement items are translated at average exchange rates for the year. The resulting translation difference attributable to the Group is entered directly under equity under the item Cumulative translation adjustments , while the translation difference attributable to non-controlling interests is recognised under the Non-controlling interests item. Valuation of goodwill in foreign 1.4. currencies Goodwill generated on foreign companies is considered to form part of the assets and liabilities of the foreign company, and is therefore expressed in the entity’s functional currency and translated using exchange rates effective at the closing date. Goodwill recorded before 1 January 2004 continues to be recorded in euros. Translation of the accounts 1.3. of foreign subsidiaries

REGISTRATION DOCUMENT / L'ORÉAL 2018

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