Air France, a French company, prepares its financial statements according to IFR

Question

Air France, a French company, prepares its financial statements according to IFRS. AF’s annual report for the year ended March 31, 2011, which includes financial statements and disclosure notes, provided with all new textbooks. This material also is provided in AF's "Registration Document 2010-11," dated June 15, 2011 and is available at www.airfranceklm.com

Required:

1 – Read Notes 3.10.2, 3.10.5, 22, 32.3 and 32.4. Focusing on investments accounted for at fair value through profit and loss (FVTPL):

A) As of March 31, 2011, what is the balance of those investments in the balance sheet? Be specific regarding which line of the balance includes the balance?

B) How much of that balance is classified as current and how much as noncurrent?

C) Is that balance stated at fair value? How do you know?

D) 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, assess the reliability (representational faithfulness) of this fair value estimate.

2 – Complete Requirement 1 again, but for investments accounted for as available for sale.

3 – Sealy Corporation reported the following line items in its statement of cash flows for the three months ended February 27, 2011:

Amortization of discount on secured notes 382,000

Amortization of debt issuance costs and other 1,175,000

In AF’s financial statements, Note 30: “Financial Debt” describes the company’s long-term debt. Neither of the two items above is reported in the financial statements of Air France, and neither is likely to appear there in the future. WHY?

4 – Is IFRS or U.S. GAAP more restrictive for determining when firms are allowed to elect the fair value option for financial assets and liabilities? Explain.

Explanation / Answer

Answer 3

Using IFRS, companies uses the “net method” to record notes and other borrowings. A discount on notes can be recorded only by using “gross method,” The discount is amortized over the life of the debt. Under IFRS, the discount is amortized over the life of the debt, but credited directly to the note account than to a separate discount account. Therefore, “Amortization of discount” would not appear in the corresponding note of Air France.

Answer 4

Under IFRS No. 39 , companies can elect the fair value option only in specific circumstances. To avoid misuse, the fair value option is limited to only those financial instruments falling into one of the following categories:

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