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

Air France–KLM (AF), a Franco-Dutch company, prepares its according to International Financial Reporting Standards. AF’s and disclosure notes for the year ended December 31, 2017, are available in Connect. This material is also available under the Finance link at the company’s website (

1. In note 4.6, AF indicates that “Sales related to air transportation are recognized when the transportation service is provided,” so passenger and freight tickets “are consequently recorded as ‘Deferred revenue upon issuance date’.”
a. Examine AF’s balance sheet. What is the total amount of deferred revenue on ticket sales as of December 31, 2017?
b. When transportation services are provided with respect to the deferred revenue on ticket sales, what journal entry would AF make to reduce deferred revenue?
c. Does AF’s treatment of deferred revenue under IFRS appear consistent with how these transactions would be handled under U.S. GAAP? Explain.
2. AF has a frequent flyer program, “Flying Blue,” which allows members to acquire “miles” as they fly on AF or partner airlines that are redeemable for free flights or other benefits.
a. How does AF account for these miles?
b. Does AF report any liability associated with these miles as of December 31, 2017?
c. Although AF’s 2017 annual report was issued prior to the effective date of ASU No. 2014-09, consider whether the manner in which AF accounts for its frequent flier program appears consistent with the
revenue recognition guidelines included in the ASU.

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