raheema.begum, if you can, I need help with this question: Air France ? KLM, a French company, prepares its financial statements according to International Financial Reporting Standards. AF's annual report for the year ended March 31, 2011, which includes financial statements and disclosure notes is attached in the file. 2. Examine the long-term borrowings in AF?s balance sheet and the related note. Note that AF has convertible bonds outstanding that it issued in 2005. Prepare the journal entry AF would use to record the issue of convertible bonds. Prepare the journal entry AF would use to record the issue of convertible bonds if AF used U.S. GAAP. 3. AF does not elect the fair value option (FVO) to report its financial liabilities. Examine Note 32:3. "Market value of financial instruments." If the company had elected FVO for all of its debt measured at amortized cost, what would be the balance at March 31, 2011, in the fair value adjustment account?

together O P E N & C O M M I T T E D Registration Document 2010-11 Registration Document 2010-11 Air France-KLM This Registration Document includes the annual nancial report This Registration Document is an unofcial translation of the French Document de Rfrence, which was led with the French Autorit des Marchs Financiers on June 15, 2011, pursuant to article 212-13 of the AMF General Regulations. This unofcial translation has been prepared by Air France-KLM for the information and convenience of English-speaking readers and has not been reviewed or registered with the AMF. No assurances are given as to the accuracy or completeness of this translation, nor any responsibility assumed for any misstatement or omission that may be contained therein. The French Document de Rfrence may be used for the purposes of a nancial transaction if supplemented with an offering memorandum approved by the AMF. In the event of any ambiguity or discrepancy between this unofcial translation and the French Document de Rfrence, the French version shall prevail. Registration Document 2010-11 Air France-KLM 1 5 Financial report Consolidated nancial statements 5.5 Consolidated financial statements 5.5.1 Consolidated income statement Period from April 1 to March 31, Notes 2010 23,615 20,994 7 5 23,622 Sales 2011 5 (In millions) 20,999 Other revenues Revenues External expenses 6 (14,555) (13,197) Salaries and related costs 7 (7,333) (7,434) (179) (216) Taxes other than income taxes Amortization and depreciation 8 (1,624) (1,640) Provisions 8 (52) (35) Other income and expenses 9 243 238 122 Income from current operations (1,285) Sales of aircraft equipment 10 8 (21) Other non-current income and expenses 10 756 (326) 886 (1,632) (455) (410) 84 106 Income from operating activities Cost of nancial debt Income from cash and cash equivalents Net cost of nancial debt 11 (371) (304) Other nancial income and expenses 11 (78) (193) 437 (2,129) 196 586 633 (1,543) (21) (17) Net income from continuing operations 612 (1,560) Net income for the period 612 (1,560) 613 (1,559) (1) (1) Income before tax Income taxes 12 Net income of consolidated companies Share of prots (losses) of associates Equity holders of Air France-KLM 20 Non controlling interests Earnings per share - Equity holders of Air France-KLM (in euros) 14.1 basic 2.08 (5.30) diluted 1.76 (5.30) The accompanying notes are an integral part of these consolidated nancial statements. 138 Registration Document 2010-11 Air France-KLM Financial report Consolidated nancial statements 5.5.2 5 Consolidated statement of recognized income and expenses March 31, 2011 March 31, 2010 612 (1,560) 165 6 4 - 952 1,159 68 532 (7) 10 (25) 4 Income/(expense) recognized directly in equity (316) (518) Total of other comprehensive income included in the recognized income and expenses 841 1,193 1,453 (367) 1,452 (370) 1 3 (In millions) Net income for the period Fair value adjustment on available-for-sale securities Change in fair value recognized directly in equity Change in fair value transferred to prot or loss Cash ow hedges Effective portion of changes in fair value hedge recognized directly in equity Change in fair value transferred to prot or loss Items of the recognized income and expenses of equity shares Currency translation adjustment Tax on items taken directly to or transferred from equity Recognized income and expenses Equity holders of Air France-KLM Non-controlling interests The accompanying notes are an integral part of these interim condensed consolidated nancial statements. Registration Document 2010-11 Air France-KLM 139 5 5.5.3 Financial report Consolidated nancial statements Consolidated balance sheet Assets Notes March 31, 2011 March 31, 2010 Goodwill 15 422 401 Intangible assets 16 695 612 Flight equipment 18 11,040 11,349 Other property, plant and equipment 18 2,111 2,252 Investments in equity associates 20 422 446 Pension assets 21 2,995 2,733 Other nancial assets (including 503 million of deposits related to nancial leases as of March 31, 2011 and 630 million as of March 31, 2010) 22 1,654 840 12.5 933 942 (In millions) Deferred tax assets Other non-current assets 25 156 180 20,428 Total non-current assets 19,755 Assets held for sale 13 21 93 Other short-term nancial assets (including 149 million of deposits related to nancial leases and 574 million of investments between 3 months and 1 year as of March 31, 2011 compared respectively to 139 million and 343 million as of March 31, 2010) 22 751 517 Inventories 23 558 537 Trade accounts receivable 24 1,938 2,142 6 1 Income tax receivables Other current assets 25 1,550 979 Cash and cash equivalents 26 3,717 3,751 8,541 8,020 28,969 27,775 Total current assets Total assets The accompanying notes are an integral part of these consolidated nancial statements. 140 Registration Document 2010-11 Air France-KLM Financial report Consolidated nancial statements 5 Liabilities and equity (In millions) Notes March 31, 2011 March 31, 2010 Issued capital 27.1 300 2,552 Additional paid-in capital 27.2 2,971 719 Treasury shares 27.3 (94) (106) Reserves and retained earnings 27.4 3,675 2,198 6,852 5,363 54 55 6,906 5,418 29 1,930 1,432 Equity attributable to equity holders of Air France-KLM Non-controlling interests Total Equity Provisions and retirement benets Long-term debt Deferred tax Other non-current liabilities 30 8,980 9,222 12.5 511 418 31 272 818 11,693 11,890 Total non-current liabilities Liability related to assets held for sale 13 - 10 Provisions 29 287 696 Current portion of long-term debt 30 1,808 1,825 Trade accounts payable 2,211 2,032 Deferred revenue on ticket sales 2,440 2,340 806 840 3 11 Frequent yer programs Current tax liabilities Other current liabilities 31 2,686 2,597 Bank overdrafts 26 129 116 10,370 10,467 Total liabilities 22,063 22,357 Total liabilities and equity 28,969 27,775 Total current liabilities The accompanying notes are an integral part of these consolidated nancial statements. Registration Document 2010-11 Air France-KLM 141 5 5.5.4 Financial report Consolidated nancial statements Consolidated statement of changes in stockholders' equity Equity attributable to holders of Air FranceKLM Non controlling interests Total equity Number of shares Issued capital Additional paid-in capital Treasury shares Reserves and retained earnings 300,219,278 2,552 765 (124) 2,429 5,622 54 5,676 Fair value adjustment on available for sale securities - - - - 6 6 - 6 Gain/(loss) on cash ow hedges - - - - 1,179 1,179 4 1,183 Currency translation adjustment - - - - 4 4 - 4 Net income for the year - - - - (1,559) (1,559) (1) (1,560) Total of income and expenses recognized - - - - (370) (370) 3 (367) Stock based compensation (ESA) and stock option - - - - 24 24 - 24 (In millions) March 31, 2009 Dividends paid - - - - - - (1) (1) OCEANE - - - - 69 69 - 69 Treasury shares (Note 27.3) - - - 18 - 18 - 18 Change in consolidation scope - - - - - - (1) (1) Other - - (46) - 46 - - - 300,219,278 2,552 719 (106) 2,198 5,363 55 5,418 Fair value adjustment on available for sale securities - - - - 166 166 - 166 Gain/(loss) on cash ow hedges - - - - 697 697 3 700 Currency translation adjustment - - - - (24) (24) (1) (25) Net income for the year - - - - 613 613 (1) 612 Total of income and expenses recognized - - - - 1,452 1,452 1 1,453 Stock based compensation (ESA) and stock option - - - - 25 25 - 25 Dividends paid - - - - - - (3) (3) Capital decrease - (2,252) 2,252 - - - - - Treasury shares (Note 27.3) - - - 12 - 12 - 12 Change in consolidation scope - - - - - - 1 1 300,219,278 300 2,971 (94) 3,675 6,852 54 6,906 March 31, 2010 March 31, 2011 The accompanying notes are an integral part of these consolidated nancial statements. 142 Registration Document 2010-11 Air France-KLM Financial report Consolidated nancial statements 5.5.5 5 Consolidated statements of cash flows Period from April 1 to March 31, 2011 2010 613 (1,559) (1) (1) 8 1,676 1,675 11 (3) 7 Gain on disposals of tangible and intangible assets (11) 61 Loss/(gain) on disposals of subsidiaries and associates (13) - (In millions) Notes Net income for the period - Equity holders for Air France-KLM Non-controlling interests Amortization, depreciation and operating provisions Financial provisions Gain on WAM (ex Amadeus) operation 10 (1,030) - Derivatives - non monetary result 11 (25) (8) 33 13 Share of (prots) losses of associates 20 21 17 Deferred taxes 12 (215) (591) (209) 143 Subtotal 836 (243) (Increase)/decrease in inventories (10) (28) (Increase)/decrease in trade receivables 171 (89) Increase/(decrease) in trade payables 245 126 Change in other receivables and payables 108 (564) 1,350 (798) 37 (33) (2) Purchase of property, plant and equipment and intangible assets 19 (2,122) (2,097) Proceeds on WAM (ex Amadeus) transaction 10 193 - Proceeds on disposal of subsidiaries and investments in associates 37 - - 977 1,053 8 5 (229) 87 (1,206) (954) Unrealized foreign exchange gains and losses, net Other non-monetary items Net cash ow from operating activities Acquisitions of subsidiaries and investments in associates, net of cash acquired Proceeds on disposal of property, plant and equipment and intangible assets Dividends received Decrease (increase) in investments, net between 3 months and 1 year Net cash used in investing activities Registration Document 2010-11 Air France-KLM 143 5 Financial report Consolidated nancial statements Consolidated statements of cash ows (cont.) Period from April 1 to March 31, Notes Increase in capital 2011 2010 6 (In millions) - Purchase of non-controlling interests, of shares in non-controlled entities 37 (13) (16) Disposal of subsidiaries without control loss, of shares in non-controlled entities 37 14 3 900 2,704 Repayments on long-term debt (646) (326) Payment of debt resulting from nance lease liabilities (550) (522) New loans (110) (73) 231 151 Issuance of long-term debt Repayments on loans Dividends paid (3) (3) (171) 1,918 Effect of exchange rate on cash and cash equivalents and bank overdrafts (20) 3 Change in cash and cash equivalents and bank overdrafts (47) 169 Net cash ow from nancing activities Cash and cash equivalents and bank overdrafts at beginning of period 26 3,635 3,466 Cash and cash equivalents and bank overdrafts at end of period 26 3,588 3,635 (32) (3) (435) (357) 49 79 Income tax (paid)/reimbursed (ow included in operating activities) Interest paid (ow included in operating activities) Interest received (ow included in operating activities) The accompanying notes are an integral part of these consolidated nancial statements. 144 Registration Document 2010-11 Air France-KLM Financial report Notes to the consolidated nancial statements 5 5.6 Notes to the consolidated financial statements Note 1 Business description As used herein, the term \"Air France-KLM\" refers to Air FranceKLM S.A., a limited liability company organized under French law excluding its consolidated subsidiaries. The Group is headquartered in France and is one of the largest airlines in the world. The Group's core business is passenger transportation. The Group's activities also include cargo, aeronautics maintenance and other air-transport related activities including, principally, catering and charter services. Note 2 2.1 The presentation currency used in these nancial statements is the euro, which is also the Group's functional currency. Signicant events Arising during the account period On April 29, 2010, the company WAM was the subject of an Initial Public Offering (IPO) on the Madrid stock exchange. This operation was executed in two stages: 1. a capital increase reserved to the market, to which the Group did not subscribe; 2. the concomitant sale of a portion of the shares held by the Group. After the operation, the Group's holding decreased from 22% to 15%. At the same time, the governance of WAM was changed. These two items involved the loss of signicant inuence for the Group as well Note 3 The limited company Air France-KLM SA, domiciled at 2 rue Robert Esnault-Pelterie 75007 Paris, France, is the parent company of the Air France-KLM group. Air France-KLM is listed for trading in Paris (Euronext) and Amsterdam (Euronext). as a change in the valuation method of the remaining shareholding. The impact of this transaction on the Group's nancial statements is described in Note 10. In April 2010, the European air space was closed or signicantly disrupted due to a volcanic eruption in Iceland. 2.2 Subsequent events There has been no signicant event since the close of the nancial year. Accounting policies 3.1 Accounting principles the periods presented would not differ substantially had the Group applied IFRS as published by the IASB. 3.1.1 Accounting principles used for consolidated nancial statements The consolidated nancial statements were approved by the Board of Directors on May 18, 2011. Pursuant to the European Regulation 1606/2002, July 19, 2002, the consolidated nancial statements as of March 31, 2011 are prepared in accordance with International Financial Reporting Standards (\"IFRS\") as adopted by the European Commission (\"EU\") and applicable on the date these consolidated nancial statements were established. IFRS as adopted by the EU differ in certain respects from IFRS as published by the International Accounting Standards Board (\"IASB\"). The Group has, however, determined that the nancial information for 3.1.2 Change in accounting principles IFRS standards, Amendments and IFRIC's interpretations applicable effective April 1, 2010 The revised standards IFRS 3 \"Business Combinations\" and IAS 27 \"Individual and Consolidated Financial Statements\" have been applied since April 1, 2010. Registration Document 2010-11 Air France-KLM 145 5 Financial report Notes to the consolidated nancial statements It has conducted to change the accounting rule concerning the loss of signicant inuence. Note 10 describes the application of this new accounting rule concerning companies in which the Group has ceased to exercise a signicant inuence during the nancial year together with the associated impact. The other texts with application effective April 1, 2010 have no impact on the Group consolidated nancial statements. IFRS Standards, amendments and IFRIC's interpretations which came into force for nancial statement for accounting periods starting April 1, 2011 and not early applied by the Group The texts adopted by the European Union as of March 31, 2011 described below, and which came into force for accounting periods starting April 1, 2011, have not been applied early by the Group for the establishment of the consolidated nancial statements when this arrangement was possible: the revised standard IAS 24 \"Related party disclosures\