Question:
Air France–KLM (AF) , a French company, prepares its financial statements according to International
Financial Reporting Standards. AF’s annual report for the year ended March 31, 2011, which includes
financial statements and disclosure notes, is provided with all new textbooks. This material also is
included in AF’s “Registration
Document 2010–11,” dated June 15, 2011 and is available at www.airfranceklm.com.
Required:
1. How does AF classify operating expenses in its income statement? How are these expenses typically
classified in a U.S. company income statement?
2. How does AF classify interest paid, interest received, and dividends 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 U.S. GAAP?
Answer:
Requirement 1
AF classifies its expenses by both natural descriptions (e.g., salaries and related costs, taxes other
than income taxes) and functions (e.g., external expenses). In the United States, expenses are classified
by function.
Requirement 2
AF classifies interest paid and interest received as operating cash flows, and dividends received as an
investing cash flow. Under IFRS, companies can report interest paid as either an operating or financing
cash flow and interest and dividends received as either operating or investing cash flows
Air France–KLM (AF) , a French company, prepares its financial statements according to International
Financial Reporting Standards. AF’s annual report for the year ended March 31, 2011, which includes
financial statements and disclosure notes, is provided with all new textbooks. This material also is
included in AF’s “Registration
Document 2010–11,” dated June 15, 2011 and is available at www.airfranceklm.com.
Required:
1. How does AF classify operating expenses in its income statement? How are these expenses typically
classified in a U.S. company income statement?
2. How does AF classify interest paid, interest received, and dividends 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 U.S. GAAP?
Answer:
Requirement 1
AF classifies its expenses by both natural descriptions (e.g., salaries and related costs, taxes other
than income taxes) and functions (e.g., external expenses). In the United States, expenses are classified
by function.
Requirement 2
AF classifies interest paid and interest received as operating cash flows, and dividends received as an
investing cash flow. Under IFRS, companies can report interest paid as either an operating or financing
cash flow and interest and dividends received as either operating or investing cash flows
