The 2014 financial statements of LVMH Moet Hennessey-Louis Vuitton S.A. are presented in Appendix C of this book. LVMH is a Paris-based holding company and one of the world’s largest and best-known luxury goods companies. As a member-nation of the European Union, French companies are required to prepare their consolidated (group) financial statements using International Financial Reporting Standards (IFRS). In LVMH’s Notes to the Consolidated Financial Statements (not presented in Appendix C), the company discloses its inventory policy:

Consider the following questions:

a. If LVMH followed U.S. GAAP, what inventory valuation method would you expect the company to use?
Why?

b. Where would you expect to find the provision for inventory impairment in the company’s financial statements?

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Inventories are valued using the weighted average cost or FIFO methods. Inventories other than wine produced by the Group are recorded at the lower of cost (excluding interest expense) and net realizable value; cost comprises manufacturing cost (finished goods) or purchase price, plus incidental costs (raw materials, merchandise). Provisions for impairment of inventories are chiefly recognized... because of product obsolescence (end of season or collection, date of expiry, etc.) or lack of sales prospects.