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 or consumers are recognised as a deduction from sales: the service cannot be separated from the product sales transaction or 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 innovation 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.
Property, plant and equipment 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 property, plant and equipment are recorded separately if their estimated useful lives, and therefore their depreciation periods, are materially different.
Property, plant and equipment are depreciated using the straight-line method, over the following useful lives:
| Buildings | 10-40 years |
|---|---|
| Industrial machinery and equipment | Industrial machinery and equipment 10-40 years 5-15 years |
| Point-of-sales advertising: stands and displays | Point-of-sales advertising: stands and displays 10-40 years 3 years |
| Other property, plant and equipment | Other property, plant and equipment 10-40 years 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, property, plant and equipment are considered to have a value of zero at the end of the useful lives indicated above.
All leases are recognised using a single model consisting of recording lease liabilities as liabilities (amount of discounted future payments) and rights of use as assets.
The lease term corresponds to the non-cancellable term of each contract and includes any renewal options that the Group is reasonably certain to exercise, particularly if the estimated useful life of the fittings in which the Group invested initially or during the lifetime of the contract exceeds the initial contractual life. In the case of termination options subject to a short notice period, these options have not been taken into account in the assessment of the lease terms.
