Net sales are recognised when the goods have been transferred to the customer.
Sales incentives, cash discounts and product returns are deducted from net sales, as are incentives granted to distributors or consumers resulting in a cash outflow, such as commercial cooperation, coupons, discounts and loyalty programmes.
Incentives granted to distributors and consumers are recorded as deducted from net sales when the following two conditions are met at the same time: the service is not separable from the sale of the product and it is not possible to reasonably estimate the fair value of the cost of the service.
Sales incentives, cash discounts, provisions for returns and incentives granted to customers are recorded simultaneously to the recognition of the sales if they can be estimated in a reasonably reliable manner, based mainly on statistics compiled from past experience and contractual conditions.
The cost of goods sold consists mainly of the industrial production cost of products sold, the cost of distributing products to customers including freight and delivery costs, either directly or indirectly through depots, inventory impairment costs, and royalties paid to third parties.
Expenditure during the research phase is charged to the income statement for the financial year during which it is incurred.
Expenses incurred during the innovation phase are recognised as Intangible assets only if they meet all the following criteria set out in IAS 38:
In view of the very large number of innovative projects and uncertainties concerning the decision to launch products relating to these projects, L’Oréal considers that some of these capitalisation criteria are not met.
These expenses consist mainly of expenses relating to the advertisement and promotion of products to customers and consumers. They are charged to the income statement for the financial year in which they are incurred.
These expenses relate mainly to sales teams and sales team management, marketing teams and administrative services, as well as general expenses and the costs and expenses of free shares.
Operating profit consists of gross profit, less research and innovation expenses, advertising and promotion expenses, and selling, general and administrative expenses.
Tangible assets are recorded on the balance sheet at their purchase price. They are not remeasured.
Assets financed by lease contracts are recognised as assets on the balance sheet under Right-of-use assets. The corresponding debt is recognised as a liability under Lease debt.
Investment subsidies are recorded as liabilities under Other current liabilities.
The components of tangible assets are recorded separately if their estimated useful lives, and therefore their depreciation periods, are materially different.
Tangible assets are depreciated using the straight-line method, over the following useful lives:
| Buildings | 40 years |
|---|---|
| Industrial machinery and equipment | 5-15 years |
| Point-of-sales advertising: stands and displays | 3 years |
| Other tangible assets | 3-10 years |
Depreciation and impairment losses are recorded in the income statement, according to the use of the asset.
In view of their nature, tangible assets are considered to have a value of zero at the end of the useful lives indicated above.
Inventories are valued at the lower of cost or net realisable value. The cost is calculated using the weighted average cost method.
A provision is made for obsolete and slow-moving inventory on the basis of their probable net realisable value, estimated on the basis of historic and projected data.
