Summary: Assessment Activity conducted at the end of the semester, for students to

the multinational dimensions of accounting with reference to transactions in foreign exchange market, taxes, auditing, and financial reporting.

At the end of the course, students must:

1. Understand the critical role of international perspectives in the application of accounting.

2. Know how differences in culture, legal system and socio-economic environment influences in the interpretation and analysis of financial information around the world.

3. Improve the skills related to global financial information.

4. Understand the need for the creation of uniform accounting standards of international application.

Instructions:

1. Use the Air France information attached to answer the following questions.

2. Answer ONE question for each of the following sections from A to F (page 1-7).

a. Part A: Financial Statements, Income Measurement and Current Assets

b. Part B: Property. Plant and Equipment and Intangibles Assets

c. Part C: Investments

d. Part D: Liabilities

e. Part E: Shareholders Equity and Additional Financial Reporting Issues

3. You choose the question that you want to answer in each section.

QUESTIONS

Air France-KLM (AF)

Spiceland, J. D., Nelson, M., & Thomas, W. (2018). Intermediate accounting. New York: McGraw-Hill/Irwin

Part A: Financial Statements, Income Measurement and Current Assets

(select and answer one question)

1. What amount did AF report for the following items for the fiscal year ended December 31, 2015?

a. Total Revenues

b. Income from current operations

c. Net Income or Net Loss

d. Total Assets

e. Total Equity

2. What was AFs basic earnings per share for the year ended December 31, 2015?

3. Examine Note 4.1.1,of AFs annual report. What accounting principles were used to prepare AFs Financial Statements? Under those accounting principles, could AFs financial information differ from that of a company that exactly followed IFRS as published by the IASB? Explain.

4. Refer to AFs Balance Sheet and compare it to the Balance Sheet (US GAAP).What differences do you see in the format of the balance sheets.

5. What differences do you see in the terminology used in the two balance sheets?

6. How does AF classify operating expense in the in its Income Statement? How are these expenses typically classified in a U.S. companys Income Statement?

7. How does AF classify interest paid, interest received in its statement of cash flows? What other alternatives, if any, does the company have for the classification of these items? How are these items classified under US GAAP?

8. In Note 4.6 AF indicates that sales related to air transportation are recognized when the transportation service is provided so passenger and freight tickets are consequently recorded as deferred revenue upon issuance

a. Examine AF Balance Sheet. What is the total amount of deferred revenue on ticket sales as of December 31, 2015?

b. When transportation services are provided with respect to the deferred revenue on ticket sales, what journal entry would AF make to reduce deferred revenue?

c. Does AF treatment of deferred revenue under IFRS appear consistent with hoe these transactions would be handled under US GAAP? Explain.

Part A: Financial Statements, Income Measurement and Current Assets (cont.)

9. AF has a frequent flyer program, Flying Blue. Which allows members to acquired miles as they fly on AF or partner airlines that are redeemable for free flights or other benefits.

a. How does AF account for these miles?

b. Does AF report any liability associates with these miles as of December 31, 2015?

c. Although AFs 2015 annual report was issued prior the effective date of ASU No. 2014-09 considers whether the manner in with AF accounts for its frequent flier program appears consistent with the revenue recognition guidelines included in the ASU.

10. In Note 4.11, AF describes how it values trade receivables. How does the approach used by AF compare to US GAAP?

11. In Note 26, AF reconciles the beginning and ending balances of its valuation allowance for trade accounts receivable, Prepare a T accounts for the valuation allowance and include entries for the beginning and ending balances and any reconciling items that affected the account during 2015.

12. Examine Note 28. Does AF have any bank overdrafts? If, so, are the overdrafts shown in the Balance Sheet the same way they would be shown under US GAAP?

13. What method does the company use to value its inventory? What other alternatives are available under IFRSs? Under US GAAP?

14. AFs inventories are valued at the lower of cost or net realizable value. Does this approach differ from US GAAP?

Part B: Property. Plant and Equipment and Intangibles Assets

(select and answer one question)

1. AFs property, plant and equipment is reported at cost. The company has a policy of not revaluing property, plant and equipment. Suppose AF decided to revalue its flight equipment on December 31, 2015, and that the fair value of the equipment on that date was 10,000 million. Prepare the journal entry to record the revaluation, assuming that the journal entry to record annual depreciation had already been recorded. (Hint: you will need to locate the original cost and accumulated depreciation of the equipment at the end of the year in the appropriate disclosure note).

2. Under US GAAP, what alternatives do companies have to value their property, plant and equipment?

3. AF calculates depreciation of plant and equipment on a straight line basis, over the useful life of the asset. Describe any differences between IFRS and US GAAP in the calculation of depreciation.

4. When does AF test for the possible impairment of fixed assets? How does this approach differ from US GAAP?

5. Describe the approach AF uses to determine fixed impairment losses. (Hint see Note 4.14) How does this approach differ from US GAAP?

6. The following is included in AFs Disclosure Note 4.13: Intangibles assets are recorded at initial cost less accumulated amortization and any accumulated impairment losses. Assume that on December 31, 2015, AF decided to revalue its Other intangibles assets (see Note 18) and that fair value on that date was determined to be 500 million. Amortization expense for the year already has been recorded. Prepare the journal entry to record the revaluation.

Part C: Investments

(select and answer one question)

1. Read Notes 24 and 36.4. Focusing on investments accounted for at fair value through profit and loss (FVTPL):

a. As of December 31, 2015, what is the total balance of those investments balance sheet?

b. How much of that balance is classified as current and how much as noncurrent?

c. How much of the fair value of those investments is accounted for using level 1, level 2 and level 3 inputs of the fair value hierarchy? Given that information asses the reliability (representational faithfulness) of this fair value estimate.

2. Complete 1a again, but for investment accounted for as available for sale.

3. Read Notes 4.3 and 22.

a. When AF can exercise significant influence over an investee, what accounting approach does it use to account for investment? How does AF determine if it can exercise significant influence?

b. If AF is involved in a joint venture, what accounting approach does it use to account for the investment?

c. What is the carrying value of AFs equity method investments in its December 31, 2015, Balance Sheet ?

d. How dis AFs equity method investments affect AF, 2015 net income from continuing operations?

Part D: Liabilities

(select and answer one question)

1. Read Notes 4.6 and 35. What do you think gave rise to total deferred income of 249 as the end of fiscal 2015? Would transactions of this type be handled similarly under US GAAP?

2. Is the threshold for recognizing a provision under IFRS different than it is under US GAAP? Explain.

3. Note 32 lists other provisions

a. Do the beginning and ending balances of total provisions and retirement benefits shown in Note 32 for fiscal 2015 tie to the balance sheet? By how much has the total amount of AFs other provisions increased or decreased during fiscal 2015?

b. Write journal entries for the following changes in the litigation provision that occurred during fiscal 2015, assuming any amounts recorded on the Income Statement are recorded as provision expense and any use of provisions and any use of provisions is paid for in cash. In each case, provide a brief explanation of the event, your journal entry is capturing.

i. New provision

ii. Use of provision

c. Is AFs treatment of litigation provision under IFRs similar to how it would be treated under US GAAP?

4. Note 32.2 lists a number of contingent liabilities. Are amounts for those items recognized as a liability on AFs Balance Sheet? Explain.

5. Examine the long-term borrowings in AFs Balance Sheet and the related note (32.2.2). Note that AF has convertible bonds outstanding that it issued in 2013. 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 the convertible bonds if AF used US GAAP.

6. AF does not elect the fair value option (FVO) to report its Financial liabilities. Examine Note 36.3. market value of financial instruments. If the company had elected the FVO for all of its debt measured at amortized cost, what would be the balance at December 31, 2015, in the fair value adjustment account?

Part E: Shareholders Equity and Additional Financial Reporting Issues

(select and answer one question)

1. AF lists for items in the shareholders equity section of its Balance Sheet. If AF used US GAAP, what would be the likely account titles for the first and fourth of those components?

2. Locate Note 29.5 in AFs Financial Satements. What items comprise Reserves and Retained Earnings as reported in the Balance Sheet? If AF KLM used US GAAP, what would be different for the reporting of these items?

3. Describe the apparent differences in the order of presentation of the components of liabilities and shareholders equity between IFRS as applied by AF and typical Balance Sheet prepared in accordance with US GAAP.

4. AF provides share based compensation in the forms of PPSs, Phantom Perfomance Shares. Recipients receive compensation in what form? How are such plans reported in the Balance Sheet? 2015? (Hint: See Note 30, Share Based Compensation) Are AFs share PPSs cliff vesting or graded vesting? How does accounting differ between US GAAP and IFRS for graded vesting plans?

5. What amount (s) of earnings per share did AF report in its Income Statement for the year ended December 31, 2015 2015? If AF used US GAAP, would it have reported EPS using the same classification?

6. Refer to AFs disclosure notes, in particular Note 2. Restatement of Accounts 2014. For the three in accounting principle reported in the note, does AF account for the changes prospectively? Is this the same approach AF would follow if using US GAAP?

7. For the change describe in 2.1, which if any, account balances required adjustment?

8. What are the primary classifications into which AFs cash inflows and outflows are separated? Is this classification the same as or different from cash flow atatements prepared in accordance with US GAAP?

9. How are cash inflows from dividends and interest and cash outflows for dividends and interest classified in AFs cash flow statements? Is this classification the same as or different from cash statements prepared in accordance with US GAAP?