British Airways, Plc. (BA), a U.K. company, prepares its financial statements according to International Financial Reporting Standards. BA's annual report for the year ended March 31, 2009, which includes financial statements and disclosure notes, is included with all new textbooks and can be found at www.britishairways.com. When answering questions, focus on BA's "Group" financial information (which is equivalent to "Consolidated" under U.S. GAAP).
Required:
1. BA's property, plant, and equipment is reported at cost. The group has a policy of not revaluing property, plant, and equipment. Suppose BA decided to revalue its equipment on March 31, 2009, and that the fair value of the equipment on that date was $280 million. Prepare the journal entry to record the revaluation assuming that the journal entry to record annual depreciation had already been recorded. (Hint: you will need to locate the original cost and accumulated depreciation of the equipment at the end of the year in the appropriate disclosure note.)
2. Under U.S. GAAP, what alternatives do companies have to value their property, plant, and equipment?
3. BA calculates depreciation of plant and equipment on a straight-line basis, over the useful life of the asset. Describe any differences between IFRS and U.S. GAAP in the calculation of depreciation.
4. How often does BA review the residual values of its depreciable assets? How does this approach differ from U.S. GAAP?
5. When does BA test for the possible impairment of goodwill and for other non financial assets? How do these approaches differ from U.S. GAAP?
6. Describe the approach BA uses to determine goodwill impairment losses. (Hint: see Note 19.) How does this approach differ from U.S. GAAP?
7. The following is included in BA's summary of significant accounting policies disclosure note: "Intangible assets are held at cost and are either amortised on a straight-line basis over their economic life, or they are deemed to have an indefinite economic life and are not amortised, but tested annually for impairment." Assume that on March 31, 2009, BA decided to revalue its landing rights intangible assets and that the fair value on that date was determined to be $190 million. Amortization expense for the year already has been recorded. Prepare the journal entry to record the revaluation.