November 21, 2013
Air France-KLM Case
Part A: Financial Statements, Income Measurement, and Current Assets
A1. Numbers were found from AirFrance’s consolidated financial statements.
A. Total revenues for fiscal year ended March 31, 2011 were €23,622 million.
B. Income from current operations for fiscal year ended March 31, 2011 were €122 million.
C. Net income (AF equity shareholders) for fiscal year ended March 31, 2011 were €613 million.
D. Total assets for fiscal year ended March 31, 2011 were €28,969 million.
E. Total equity for fiscal year ended March 31, 2011 were €6,906 million.
A2. AF’s basic earnings per share for the 2011 fiscal year was €2.08. ...view middle of the document...
The last difference is that for IFRS IAS No. 1, revised changed the title of the balance sheet. It is referred to as the statement of financial position. However, companies are not required to use that, but some U.S. companies use that statement title too (Spiceland, Sepe, Nelson 122).
A5. AF classifies operating expenses in its income statement by natural descriptions and functions. Things such as salaries and related costs and taxes other than income taxes would fall under natural descriptions. While external expenses would fall under functions. When done by a U.S company, these expenses are typically classified by function on the income statement (Spiceland, Sepe, Nelson 177).
A6. AF classifies interest paid and interest received as cash flow from operating activities. Dividends received are classified as an investing cash flow. The other alternative the company has for the classification of these items is that under IFRS they can report interest paid as an operating or financing cash flow. Interest and dividends received can be operating or investing cash flows. Under U.S. GAAP, interest paid, interest received, and dividends received are all classified as operating cash flows (Spiceland, Sepe, Nelson 199).
A. According to AF’s balance sheet, the total amount of deferred revenue on ticket sales as of March 31, 2011 were €2,440 million.
B. The journal entry would be:
Deferred revenue on ticket sales 2,440
Sales revenue 2,440
C. AF’s treatment of deferred revenue under IFRS does appear consistent with how these transactions would be handled under U.S. GAAP. As stated in note 3.6 “Upon issuance, both passenger and cargo tickets are recorded as “Deferred revenue on ticket sales” and that “Sales related to air transportation are recognized when the transportation service is provided.” While on page 235 in the text it says, “These general conditions typically will lead to revenue recognition at the same time and in the same amount as would occur under U.S. GAAP, but there are some exceptions. I would interpret that as the two being consistent.
A. Note 3.7 (Loyalty Programs) states that AF accounts for the miles “In accordance with the IFRIC 13 ‘Loyalty programmes’, these ‘miles’ are considered distinct elements from a sale with multiple elements and one part of the price of the initial sale of the airfare is allocated to this ‘miles’ and deferred until the Groups commitments relating to these ‘miles’ have been met.
The deferred amount due in relation to the acquisition of miles by members is estimated:
* According to the fair value of the ‘miles’, defined as the amount at which the benefits can be sold separately;
* After taking into account the redemption rate. Corresponding to the...