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, 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 accounting policy regarding brand and trade names, an important asset for a luxury goods company:

Consider the following questions:

a. Describe the key components of LYMH’s accounting policy for brand names.

b. How might LVMH determine whether a brand name had a finite or infinite useful life?

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Only acquired brands and trade names that are well known and individually identifiable are recorded as assets based on their market values at their dates of acquisition. Costs incurred in creating a new brand or developing an existing brand are expensed. Brands, trade names and other intangible assets with finite useful lives are amortized over their estimated useful lives. The classification of a brand or trade name as an asset of definite or indefinite useful life is generally based on the following criteria: the brand or trade name's positioning in its market expressed in terms of volume of activity, international presence and notoriety; its expected long-term profitability; its degree of exposure to changes in the economic environment; any major event within its business segment liable to compromise its future development; its age. Amortizable lives of brands and trade names with definite useful lives range from 15 to 40 years, depending on their estimated period of utilization. Any impairment expense of brands and trade names and, in some cases, amortization expense, are recognized within "Other operating income and expenses."