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

1. Read Notes 3.6 and 31. What do you think gave rise to total deferred income of €121 as of the end of fiscal 2011? Would transactions of this type be handled similarly under U.S. GAAP?
2. Is the threshold for recognizing a provision under IFRS different than it is under U.S. GAAP? Explain.
3. Note 29 lists "provisions and retirement benefits."
a. Do the beginning and ending balances of total provisions and retirement benefits shown in Note 29 for fiscal 2011 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 2011?
b. Prepare journal entries for the following changes in the litigation provision that occurred during fiscal 2011, 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.
i. New provision ii. Use of provision iii. Reversal of unnecessary provisions.
c. Is AF's treatment of litigation provision under IFRS similar to how it would be treated under U.S. GAAP?
4. Note 29.3 lists a number of contingent liabilities. Are amounts for those items recognized as a liability on AF's balance sheet? Explain.

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