5 _377 2023 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN 5 FINANCIAL PERFORMANCE 2023 consolidated financial statements 3.18 Non-derivative financial assets 3.18.1 Asset categories The Group classifies and measures its debt instruments in the following categories depending on their alignment with "solely payment of principal and interest" (SPPI) criteria and with its business model: ● amortized cost: financial assets held to maturity in order to collect repayments from principal and interest; ● fair value through profit or loss: financial assets that do not meet the criteria to be classified as amortized costs (SPPI and HTC). The Group measures all its unconsolidated equity investments at their fair value. The Group chooses to use the irrevocable option to record fair value adjustments in other comprehensive income and the realized gains or losses on disposal are not recycled in the income statement. The impairment losses recognized on equity investments are not shown separately from the other changes in fair value. 3.18.2 Initial recognition and derecognition Purchases and sales of non-derivative financial assets are recognized on the trade-date, i.e., the date on which the Group commits to purchase or sell the asset. Non-derivative financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Non-derivative financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. 3.18.3 Measurement Loans and receivables are measured at amortized cost using the effective interest rate method. Financial assets at fair value are valued by direct reference to a price quoted in an active market or on the basis of market assumptions (note 3.6 “Fair value of financial instruments”). Gains and losses, realized or unrealized, arising from changes in the fair value of financial assets at fair value through profit or loss are recognized immediately in other operating income and expenses. Gains and losses, realized or unrealized, arising from changes in the fair value of financial assets at fair value through comprehensive income are recorded in other comprehensive income and never impact the income statement. 3.18.4 Impairment At each reporting date, the Group looks for any objective indication of impairment of financial assets recorded at amortized cost. The model for calculating the expected credit loss is determined on the basis of the counterparty rating and the associated default probability. The impairment loss is calculated over a period of 12 months given the non-deterioration of the credit risk of the counterparties. It is recognized in the income statement. When the credit risk of a financial asset at amortized cost increases significantly, the expected credit loss is calculated over the life of the asset. If there is no longer a reasonable expectation to recover the value of a financial asset at amortized cost, the asset is derecognized from the consolidated statement of financial position and impacts the income statement.
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