The Company’s annual financial statements are prepared in accordance with French law and regulations (French Chart of Accounts) and generally accepted accounting principles.
These are comprised of sales of goods (net of returns from distributors and rebates and discounts) and services (including technological assistance fees).
Expenses relating to the advertisement and promotion of products to customers and consumers are recognised as expenses for the year in which the advertisement or promotional initiative takes place.
Research and innovation costs are recognised in expenses in the period in which they are incurred.
The Company has opted for the French tax group regime. French companies included in the scope of tax consolidation recognise an income tax charge in their own accounts on the basis of their own taxable profits and losses.
L’Oréal, as the parent company of the tax group, recognises as tax income the difference between the aggregate tax charges recognised by the subsidiaries and the tax due on the basis of consolidated taxable profit or loss of the tax group.
Intangible assets are recorded in the balance sheet at purchase cost, including acquisition costs.
Technical merger losses are allocated to the corresponding underlying assets and amortised where appropriate.
The value of newly acquired trademarks is calculated based on a multi-criteria approach taking into consideration their reputation and their future contribution to profits.
In accordance with regulation No. 2004-06 on assets, certain trademarks have been identified as amortisable regarding their estimated useful life.
Non-amortisable trademarks are tested for impairment at least once a year on the basis of the valuation model used at the time of their acquisition. An impairment is recorded where appropriate. Initial trademark registration costs are recorded as expenses.
Patents are amortised over a period ranging from 2 to 10 years.
Business goodwill is not amortised. It is impaired whenever the present value of future cash flows is less than the book value. Business goodwill is subject to impairment tests at least once a year, even when there is no evidence of an impairment loss.
Software of material value is amortised using the straight-line method over its probable useful life, generally between five and eight years. It is also subject to accelerated tax-driven amortisation, which is recognised over a 12-month period.
Other intangible assets are usually amortised over periods not exceeding 20 years.
Tangible assets are recognised at purchase cost, including acquisition expenses.
The useful lives of tangible assets are as follows:
| Length | |
|---|---|
| Buildings | Buildings Length20-50 years |
| Fixtures and fittings | Fixtures and fittings Length5-10 years |
| Industrial machinery and equipment | Industrial machinery and equipment Length10 years |
| Other tangible assets | Other tangible assets Length3-10 years |
Both straight-line and declining-balance depreciation is calculated over the actual useful lives of the assets concerned. Exceptionally, industrial machinery and equipment is depreciated using the straight-line method over a period of 10 years, with all additional depreciation classified as accelerated tax-driven depreciation.
These items are recognised in the balance sheet at purchase cost excluding incidental expenses.
Their value is assessed annually by reference to their value in use, which is mainly based on the current and forecast profitability of the subsidiary concerned and the share of equity owned. If the value in use falls below the net book value, an impairment is recognised.
Loans and other receivables are valued at their nominal amount. Loans and other receivables denominated in foreign currencies are translated at the exchange rate prevailing at the end of the financial year. If necessary, impairments are recognised against these items to reflect their value in use at the end of the financial year.
Treasury shares acquired in connection with buyback programmes to be cancelled is recognised in other long-term investments.
At the end of the financial year, other long-term investments are compared with their probable sale price and a provision for impairment recognised where appropriate.
Inventories are valued using the weighted average cost method.
An impairment is made for obsolete and slow-moving inventories on the basis of their probable net realisable value, estimated on the basis of historic and projected data.
Trade accounts receivable and other receivables are recorded at their nominal value. Where appropriate, an impairment is recognised based on an assessment of the risk of non-recovery.
