Search o LTE 6:18 PM Air France-KLM Cases LO1S-9 Real World Financials Air France-KLM (AF), a Franco-Dutch company, prepares is financial statements according to IFRS Required In note 4: Summary of accounting policies, part 4.14: Leases, AF states that " leases are classified as finanoe leases when the lease arrangement transfers substantially all the risks and rewards of ownerships to the lessee. All other leases are classified as operating leases. Is this policy companies using US GAAP ollow? Is this the policy AF will follow when it begins Applying the new lease guidance in the 2015 update to IFRS 16? Explain. Note 4, part 4.14 14 Property, plant and equipment Principles applicable Property plant and equipment are recorded at their acquisition or manufacturing cost, less accumulated depreciation and any accumulated impairment losses. The financial interest atributed to advance payments made gn account of investments in aircraft and other significant assets under construction is capitalized and added to the cost of the asset concemed. As prepayments on investments are not financed by specific loans, the Group uses the average interest rate on the current unallocated loans at the end of the period. Maintenance costs are recorded as expenses during the period when incurred, with.tnecxcention of programs that extend the useful life of the asset or increase its value, which are then capitalzed (eg. maintenance on airtrames and engines, excluding parts with limited useful lives) Flight equipment Ihe purchase price of aircraft equipment is denominated in foreign currencies. it is translated at the exchange rate at the date of the transaction or, if applicable, at the hedging price assigned to it. Manufacturers' discounts, if any, are deducted from the value of the related asset Aircraft are depreciated using the straight-Hine method over their average estmated useful life of 20 years, assuming no residual value for most of the aircraft in the feet. This useful lMe can, however, be extended to 25 years for some aircraft. During the operating cycle, and when establishing fleet replacement plans, the Group reviews whether the amortizable base or the useful life should be adjusted and, if necessary, determines whether a residual value should be recognized. Any major airtrame and engine ovehaul (excluding parts with limited usefull lives) are treated as a separate asset component with the cost capitalized and depreciated over the period between the date of acquisition and the next major overmaul Aircraft spare parts (maintenance business) which enable the use of the fleet are recorded as fxed assets and are amortized on a straight-line basis over the estimated residual lifetime of the aircraft /engine type on the world market. The useful lite is limited to a maximum of 30 years Other property, plant and equipment Other property, plant and equipment are depreciated using the straight-line method over their useful lives as follows Buildings 20 to 50 years Fixtures and tittings 8 to 20 years Flight simulators 10 to 20 years Equipment and tooling 3 to 15 years Leases In accordance with LAS 17 "Leases, leases are classified as finance leases when the lease arrangement transters substanbaly all the risks and rewards of ownership to the lessee. All other leases are classifed as operating leases. Assets held under tinance leases are recognized as assets at the lower of the following two vallues: the present value of the minimum lease payments under the lease arrangement or their fair value determined at inception of the lease. The corresponding obligation to the lessor is accounted for as long-term debt. These assets are depreciated over the shorter of the usetul lde of the assets and the lease term when there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term. In the contet or sale and operating leaseback transactions, the related protts or losses are accounted for as ollows-they are recognized immediately when it is clear that the transaction has been realized at fair value-if the sale price is below fair value, any profnt or loss is recognized immediately except that, if the oss is compensated for by future lease payments below market price, deterred and amortized in proportion to the lease payments over the period for which the asset is expected to be used,-if the sale price is above fair value, the excess over tair value is deferred and amortized over the period for which the asset is expected to be used. In the context of sale and finance easeback transactions, the asset remains in the Group's balance sheet with the same net book value. Such transactions are a means whereby the lessor provides finance to the lessee, with the asset as security Search o LTE 6:18 PM Air France-KLM Cases LO1S-9 Real World Financials Air France-KLM (AF), a Franco-Dutch company, prepares is financial statements according to IFRS Required In note 4: Summary of accounting policies, part 4.14: Leases, AF states that " leases are classified as finanoe leases when the lease arrangement transfers substantially all the risks and rewards of ownerships to the lessee. All other leases are classified as operating leases. Is this policy companies using US GAAP ollow? Is this the policy AF will follow when it begins Applying the new lease guidance in the 2015 update to IFRS 16? Explain. Note 4, part 4.14 14 Property, plant and equipment Principles applicable Property plant and equipment are recorded at their acquisition or manufacturing cost, less accumulated depreciation and any accumulated impairment losses. The financial interest atributed to advance payments made gn account of investments in aircraft and other significant assets under construction is capitalized and added to the cost of the asset concemed. As prepayments on investments are not financed by specific loans, the Group uses the average interest rate on the current unallocated loans at the end of the period. Maintenance costs are recorded as expenses during the period when incurred, with.tnecxcention of programs that extend the useful life of the asset or increase its value, which are then capitalzed (eg. maintenance on airtrames and engines, excluding parts with limited useful lives) Flight equipment Ihe purchase price of aircraft equipment is denominated in foreign currencies. it is translated at the exchange rate at the date of the transaction or, if applicable, at the hedging price assigned to it. Manufacturers' discounts, if any, are deducted from the value of the related asset Aircraft are depreciated using the straight-Hine method over their average estmated useful life of 20 years, assuming no residual value for most of the aircraft in the feet. This useful lMe can, however, be extended to 25 years for some aircraft. During the operating cycle, and when establishing fleet replacement plans, the Group reviews whether the amortizable base or the useful life should be adjusted and, if necessary, determines whether a residual value should be recognized. Any major airtrame and engine ovehaul (excluding parts with limited usefull lives) are treated as a separate asset component with the cost capitalized and depreciated over the period between the date of acquisition and the next major overmaul Aircraft spare parts (maintenance business) which enable the use of the fleet are recorded as fxed assets and are amortized on a straight-line basis over the estimated residual lifetime of the aircraft /engine type on the world market. The useful lite is limited to a maximum of 30 years Other property, plant and equipment Other property, plant and equipment are depreciated using the straight-line method over their useful lives as follows Buildings 20 to 50 years Fixtures and tittings 8 to 20 years Flight simulators 10 to 20 years Equipment and tooling 3 to 15 years Leases In accordance with LAS 17 "Leases, leases are classified as finance leases when the lease arrangement transters substanbaly all the risks and rewards of ownership to the lessee. All other leases are classifed as operating leases. Assets held under tinance leases are recognized as assets at the lower of the following two vallues: the present value of the minimum lease payments under the lease arrangement or their fair value determined at inception of the lease. The corresponding obligation to the lessor is accounted for as long-term debt. These assets are depreciated over the shorter of the usetul lde of the assets and the lease term when there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term. In the contet or sale and operating leaseback transactions, the related protts or losses are accounted for as ollows-they are recognized immediately when it is clear that the transaction has been realized at fair value-if the sale price is below fair value, any profnt or loss is recognized immediately except that, if the oss is compensated for by future lease payments below market price, deterred and amortized in proportion to the lease payments over the period for which the asset is expected to be used,-if the sale price is above fair value, the excess over tair value is deferred and amortized over the period for which the asset is expected to be used. In the context of sale and finance easeback transactions, the asset remains in the Group's balance sheet with the same net book value. Such transactions are a means whereby the lessor provides finance to the lessee, with the asset as security