Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements a

Question

Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF's financial statements and disclosure notes for the year ended December 31, 2013, are provided with all new textbooks. This material also is available at www.airfranceklm-finance.com. This case addresses a variety of characteristics of financial statements prepared using IFRS often comparing and contrasting those attributes of statements prepared under U.S. GAAP. D3. Note 31 lists “provisions and retirement benefits.” Do the beginning and ending balances of total provisions and retirement benefits shown in Note 31 for fiscal 2013 tie to the balance sheet? By how much has the total amount of the AF's “provisions and retirement benefits” increased or decreased during fiscal 2013? Write journal entries for the following changes in the litigation provision that occurred during fiscal 2013, assuming any amounts recorded on the income statement are recorded as “provision expense”, 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. New provision. Use of provision. Is AF's treatment of litigation provision under IFRS similar to how it would be treated under U.S. GAAP?

Explanation / Answer

As is evident from the face of the balance sheet, the provisions (current portion) have increased from 555 Million to 670 Millions while the non-current portion has decreased from 3158 Million to 3102 Million. On gross basis, the total provisions have increased from 3713 Mn to 3772 Mn. The figures have been bifurcated into current/ non-current on the basis of principles of classification spelt out under IFRS. According to the same, any liability expected to be settled within 12 months from the reporting date is classified as current.

As per the question, only change in the litigation provision is to be journalised. Following journal entries are to be passed :

1. Opening Balance of provision 439 Million.

2. Creation of provision at Balance sheet date :

Provision Expense Dr. 76 Mn

To Litigation Provision Cr. 76 Mn

3. Use of provision during the period

Litigation Provision Dr. 43 Mn

To Cash A/c Cr. 43 Mn

4. Reclassification of provision 2 Mn has not been explained in the further notes and in absence of the same, it is not possible to journalise the same.

5. Closing Balance of Provision : 439+76-43+2 = 474 Mn

Further, in the absence of quantitative data with respect to the litigation cases inspite of the types of cases detailed in further notes, there seems no difference between IFRS and US GAAP in the recognition.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.