EAB20703- FINANCIAL AND REPORTING 2

GROUP ASSIGNMENT

Prepared for:

SIR GHOLAMREZA ZANDI POUR JOOPARI

Prepared by:

FAIZ ZULHAQEEM BIN MOHD FARITH (62213223089)

MUHAMMAD HAFIZ BIN ZAHID (62213223514)

MUHAMMAD IRFAN AFIQ BIN MOHD NAJIB (62213223541)

Class Group: AC10

Submission Date:

8 JANUARY 2024
TARGET CORPORATION CASE
QUESTION 1

A. Gross Margin = Revenue – Cost of sales

= $ 106,005 - $74,963
=$31,042
B. EBITDA
Based on the statement above, the operating income excluding depreciation is $8,946
Thus EBITDA = Operating income + Depreciation and Amortization
= $8,946 + 2,344
=$11,290
C. EBIT = Earnings before interest and tax = Operating income
 = $8,946
D. EAT = Earnings after tax = Net earnings
= $6,946

Question 2

Based on the provided information from the consolidated statements of comprehensive

income for target corporation the item reported as other comprehensive income (OCI) are as
follows:

Pension benefits liabilities in three years in 2021, Target report a pension benefit liability of
$152 million, in 2020 it report $102 million, and in 2019 it report a reversal of $65 million.
This represents gain or losses resulting from changes in the value of pension plan assets and
obligations.

Currency translation adjustments and cash flow hedges also in three years in 2021 $51
million, 2020 $10 million and in 2019 $2 million. This item reflects gain or losses arising
from translating the financial statements of foreign subsidiaries into the reporting currency, as
well as changes in the fair value of derivatives used for hedging purposes.

Other comprehensive income/(Loss): Target reported $203 million in total other

comprehensive income in 2021, $112 million in 2020, and a $63 million loss in 2019. This
covers the cash flow hedges, currency translation adjustment, and pension benefit liabilities
discussed before.
To give a more complete picture of its financial performance and changes in equity over time,
Target Corporation publishes these items as part of its comprehensive income.

Question 3

The indirect method starts with the net income generated for the specified period and adds or
subtracts the adjustments made to the asset and liability accounts to get at the inferred cash
flow. The indirect technique of calculating the statement of cash flows provides more precise
information on the operating cash flow accounts, but it is a more time-consuming process. It
is clear from Target Corporation's aforementioned statement that the company employs the
indirect method.

Question 4
To determine whether net earnings or operating cash flows are higher, we can compare the
respective figures reportd in the consolidated statements of cash flows for target corporation.

Based on the statement of cash flows, we find the following:

Net earnings for the year ended:

2021: $6,946 million

2020: $4,368 million

2019: $3,281 million

Cash provided by operating activities continuing operations for the year ended:

2021: $8,625 million

2020: $10,525 million

2019: $7,099 million

We can see from this data that, for each of the three years that are shown, operating cash
flows are consistently greater than net earnings.

Usually, depreciation and amortization account for the majority of the discrepancy between
net earnings and operating cash flows. Non-cash expenses like depreciation and amortization
are subtracted from net earnings but added back when calculating operating cash flows.

The cost of long-term assets is spread out over their usable lives through depreciation,
whereas the cost of intangible assets is spread out over their useful lifetimes through
amortization. These expenses are taken into account when calculating operating cash flows,
but they have no effect on the company's financial position because they are non-cash.

Operating cash flows are larger than net earnings primarily because depreciation and
amortization were included in the adjustments made to convert net earnings to operating cash
flows.
Question 5
According to the information obtained from Target Corporation's Consolidated Statements of
Cash Flows, the company's largest financing and investing cash flows for the year that
concluded on February 3, 2021, are as follows:

Largest reported investing cash flow: At $3,544 million, the "Expenditures for property and
equipment" line item is the largest reported investing cash flow.

Biggest financing cash flow: At $7,356 million, the "Repurchase of stock" line item is the
greatest financing cash flow that has been disclosed.
Air France-KLM Case

Question 1

Operating expenses are broken down into different areas in the income statement of Air
France Company, including staff costs, aircraft and maintenance costs, fuel costs, airport
fees, and miscellaneous operating expenses. The overall operational expenses for the time are
then calculated by adding up all of these costs. In the income statement of a US company,
operating expenses are typically classified into comparable categories such cost of items sold,
selling and administrative expenses, and research and development expenses. However, the
particular categories may vary based on the industry and the particular company. After that,
the total operating costs are calculated and shown on the income statement.

Question 2
A financial statement that shows the flow of cash and cash equivalents into and out of
a business is called the cash flow statement. The majority of the cash flow statement is made
up of funds from three categories: financing, investment, and operating activities. Because it
divides cash inflows into categories for interest and dividend receiving, the Air France
Company prepares its statement of cash flows in accordance with International Financial
Reporting Standards (IFRS). Cash flows from interest and dividends received and paid are
required by MASAB to be reported separately. From one period to the next, each should be
consistently classified as an operating, investing, or financing activity.

According to International Accounting Standards (IAS) 7, a financial institution will

often classify interest paid, and interest and dividends received as operating cash flows.
Although IAS 7 permits the following classifications, there is no general agreement on how
non-financial organisations’ cash flows should be handled. Interest paid and interest and
dividends received may be classified as operating cash flows due to their significance in
determining net profit or loss. Alternatively, interest paid, and interest and dividends received
may be classed as financing cash flows and investing cash flows respectively, because they
represent expenses associated with getting financial resources or returns on investments.
Companies can report interest paid as an operating or financing cash flow under IFRS, while
interest and dividends received can be reported under either an operating or investing cash
flow. According to the statement of cash flow of Air France Company, it classifies interest
paid and interest received under financial provisions which are shown under net cash flows
from operating activities on the cash flow statement. Meanwhile, dividends received are
classified as cash inflows from investing activities.

Air France Company has options regarding how these things are classified. For
example, companies can report dividends received, interest paid, and interest received as
operating activities. This is because one Board member made the suggestion during the
meeting that dividends earned, interest paid, and interest received be classified as operating
cash flows for both financial and non-financial firms. Therefore, the alternative strategy
outlined would achieve the Board's objective of removing choices for the cash flow
classification of dividends and interest. The alternative technique has a few benefits, one of
which being that it would be less expensive for preparers to implement because they wouldn't
have to decide how to categorize these cash flows. Moreover, it would comply with U.S.
GAAP, which generally requires that dividends, interest paid, and interest received be
recorded as operating cash flows.

Under the U.S. GAAP, companies can report all of the items which are interest
received and paid as well as dividend received as operating activities because they are
regarded as primary sources of revenue for many companies. The classification of these items
as operating activities improves financial reporting transparency and comparability by
allowing investors and analysts to better understand a company's cash flows from core
operations. This treatment may differ under International Financial Reporting Standards
(IFRS), which may require different classification of these items.
Question 3
a. Financial periods required

U.S. GAAP stands for Generally Accepted Accounting Principles, which are the
generally accepted financial reporting standards in the United States. IFRS stands for
International Financial Reporting Standards, are a set of internationally accepted accounting
standards that are used by the majority of the world’s countries. The level of specific
guidance offered tends to cause differences between the two sets of standards.

In US GAAP, comparative financial statements are produced. A single year may be

reported under particular circumstances. Public firms must follow SEC standards, which
normally require balance sheets for the two most recent years, while all other statements must
cover the three-year period ending on the balance sheet date. However, under IFRS,
comparative information with respect to the prior period must be disclosed for all amounts
presented in the current period's financial statements.

The needed financial periods are one of the primary distinctions between IFRS and
U.S. GAAP accounting standards. In contrast to IFRS, which only mandates semi-annual
financial reporting, U.S. GAAP compels businesses to disclose their financial statements on a
quarterly basis. Financial reporting periods can be more flexible under IFRS, which is
another distinction. Depending on their business cycles, companies can opt to report on a
quarterly basis or another schedule. This level of flexibility is prohibited by U.S. GAAP.

IFRS permits revenue and expenses to be reported on either a gross or a net basis
depending on the circumstances, U.S. GAAP mandates corporations to report revenue and
expenses on a gross basis. This distinction may have an impact on the presentation of
financial statements as well as how well investors comprehend a company's financial
performance.
 b. Layout of balance sheet and income statement

Balance sheet

According to U.S. GAAP, assets and liabilities are displayed in different categories
based on their liquidity. US GAAP does not mandate that the balance sheet and income
statement be prepared in a certain format, but public businesses are nevertheless required to
adhere to Regulation S-X's specific guidelines. On the other hand, IFRS mandates that assets
and liabilities be reported in the order of expected maturity. The IFRS offers a list of required
line items but does not specify a uniform layout. Compared to the requirements in Regulation
S-X, these minimum line items are less restrictive.

Under IFRS, equity is provided between liabilities and assets, as opposed to U.S.
GAAP, where equity is presented after liabilities while IFRS permits the offsetting of
deferred tax assets and liabilities in certain circumstances, although U.S. GAAP mandates
that they be stated separately on the balance sheet. Intangible assets are listed separately on
the balance sheet under U.S. GAAP; however, they are incorporated into the non-current
assets category under IFRS.

Income statement

Under US GAAP, extraordinary items can be reported on the income statement,

although IFRS requires them to be presented as separate items in the financial statements'
notes. Interest and dividends are treated differently under US GAAP and IFRS. Under US
GAAP, interest and dividends are reported as operating cash inflows on the cash flow
statement, whereas IFRS considers them investing cash inflows.

Research and development costs must be expensed as they are incurred under US
GAAP, however IFRS permits them to be capitalised provided specific requirements are met.
Non-operating gains and losses must be recorded separately on the income statement under
US GAAP, although IFRS permits them to be included in income from operations.

g. Statement of cash flows- restricted cash

The key differences between U.S. GAAP and IFRS include the treatment of restricted
cash in the statement of cash flows. According to U.S. GAAP, the statement of cash flows
displays the changes in restricted cash and restricted cash equivalents. Additionally, entities
must reconcile the totals in the statement of cash flows to the associated captions on the
balance sheet when cash, cash equivalents, restricted cash and restricted cash equivalents are
shown in multiple line items on the balance sheet. This reconciliation can be included on the
cash flow statement itself or in the notes to the financial statements. Meanwhile, IFRS do not
have a specific guidance and do not address whether restricted amounts should be included in
a company’s cash and cash equivalent balances in the statement of cash flows. Overall, U.S.
GAAP provides more clarity on the treatment of restricted cash on the statement of cash
flows than IFRS.

h. Disclosure of performance measures

Another difference between U.S. GAAP and IFRS is the disclosure of performance
measures. There are no general guidelines in U.S. GAAP that addresses the presentation of
particular performance measures. SEC regulations define certain key measures and particular
headings and subtotals must be presented. Additionally, public companies are not permitted
to disclose non-GAAP measures in the financial statements and accompanying notes. IFRS,
on the other hand demands the presentation of extra line items, headings, and subtotals in the
statement of comprehensive income when such presentation is necessary for understanding
the entity’s financial performance. IFRS has requirements when subtotals are provided, IFRS
specifies how they should be presented.

In short, understanding these key differences between IFRS and U.S. GAAP is important
since it might affect the accuracy and comparability of financial statements. This is especially
true in international business transactions, where companies may be required to convert
financial statements from one standard to another.

References

KPMG US. (2023, April 7). KPMG; KPMG.

https://advisory.kpmg.us/articles/2022/ifrs-accounting-standards-us-gaap.html#:~:text=Under

%20IFRS%20Accounting%20Standards%2C%20the

US GAAP versus IFRS. (n.d.).

https://assets.ey.com/content/dam/ey-sites/ey-com/en_us/topics/assurance/accountinglink/ey-

ifrs11560-211us-01-14-2021.pdf