Air France KLM Case Air FranceKLM AF a FrancoDutch company p

Air France- KLM Case

Air France-KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards.

Required:

AF reported past service cost (called prior service cost under U.S GAAP) in its income statement as part of net periodic pension cost. Is that reporting method the same or different from the way we report prior service cost under U.S GAAP?

Look at notes 31.2, “ retirement benefits” AF incorporate estimates regarding staff turnover, life expectancy, salary increases, retirement age, and discount rates. How did AF report changes n these assumptions? Is that reporting method the same or different from the way we report changes under U.S GAAP?

AF does not report remeasurement gains and losses in its income statement. Where did AF report these amounts? Is that reporting method the same or different from the way we report pension under U.S GAAP?

See note 23. Did AF report net interestinco cost or net interest income in 2015? How is that amount determined?

note 31.2

note 23

note

5.5.1 Consolldated Income statement Not income for the period (216) Perlod from Janary 1 to December S Fair value adjustment on avatabie-for-sale securties Change in tair value recognand directy in o Change in tr value transtorred to prot or loss Fair value hodges erective portion of Canges in fair vaue hedge recogntzed drectly inother comprehensive income 24,012 7(5,682) Saaries and rotatod Taxes other than income ta0e Cash now hedges Effoctre portion of danges in tar value hedge racogntzad diractiy in other comprohanve Income Change In r value transtened to proet or loss EBITDAR Aruaft aperating leae cots EBITDA 2,447 that will be roclassined to pront or loss Total of other Income from current operations Salos of aircraft equipment Other non-current income Income from operating activties Cost of financial debt Income fron cash and cash equivaonts Deterred tax on Itoms of comprehenslve Income that will not be reclassied to profit or loss C2048 oeher firuncial ncome and Ryholders of Air Frane KLM Income taxes (39) Share of pronts dosses or associates Net income from continuing oporations Net income Bom dsconbnued operatons Not Income for the period Non controling interests Net income-Group part Earnings per share-Equuty hokkrs of Ar FancE-KLMn uro) Not income from continuing operations-Eqity holders of Ar France-KILM o ur basic and duted (0.75) Not incomeomicontinued opcrations-Equty hokkrs ot Air Rance-KLM uros) basic and dhuted

Solution

Solution of 1st

There is difference in reporting the prior service cost under U.S GAAP and IFRS. Under U.S. GAAP prior service cost is not expensed immediately and due to this reason it becomes a part of the other comprehensive income statement whereas under IFRS net periodic pension consists of prior service cost and service cost both for vested and non-vested employees is recognized and it is shown in the income statement. Under U.S GAAP prior service cost is amortized over the average remaining service period of active employees.

Solution of 2nd

If Air – France Company is using IFRS, it would show its gains and losses in the statement of comprehensive income and from there it will become part of the accumulated other comprehensive income. Due to this reason it is not amortized to expense whereas under U.S. GAAP the gains and losses are shown directly in accumulated other comprehensive income. . Due to this reason it is amortized to expense if the net gain or loss exceeds 10%.

Solution of 3rd

Pension expense consists of the following components

Service Cost
Net interest cost or income
Amortization of re-measurement gains and losses

Under U.S GAAP all the components of pension expense reported as a single amount in the income statement whereas under IFRS all the components of pension expense are shown separately .Service Cost and net interest cost or income are shown in income statement and Amortization of re-measurement gains and losses are shown in the statement of comprehensive income.

Solution of 4th

AF report net interest cost of 159 million in 2015.The net periodic pension (cost)/Income for the period by multiple corporate bond rates and the difference between the defined benefit obligation and plan assets.