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Case 10-1 Swisscom AG Swisscom AG, the principal provider of telecommunications in Switzerland, pre- pares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Until 2007, Swisscom also reconciled its net income and stockholders equity to U.S. GAAP. Swisscoms consolidated financial state- ments from a recentannual report are presented in their original format in Column 1 of the following worksheet. Note 27, Differences between International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles, which includes Swisscoms U.S. GAAP reconciliation, also is provided Required 1. Use the information in Note 27 to restate Swisscoms consolidated financial statements in accordance with U.S. GAAP. Begin by constructing debit/credit entries for each reconciliation item, and then post these entries to columns 2 and 3 in the worksheets provided. 2. Calculate each of the following ratios under both IFRS and U.S. GAAP and determine the percentage differences between them, using IFRS ratios as the base: Net income/Net revenues Operating income/Net revenues Operating income/Total assets Net income/Total shareholders equity Operating income/Total shareholders equityCurrent assets/Current liabilities Total liabilities/Total shareholders equity Which of these ratios is most (least) affected by the accounting standards used? Workshaat for the Rastatement of Swisscoms Financial Statements from IFRS to U.S. GAAP Reconciling Adjustmants 4) IFRS Dabit Crod US GAAP Consolidatod Statemant of Oparations Net revanues Capitaized cost and changas in 9,842 Total Goods and services purchased ...1,606 Personnel axponses Othar operating exporeS Dopreciation and amortization .1739 Restructuring charges Total operating axponses- 2,584 2,090 1726 9,805 314 (428 ntarest cxpense Financial income Income (loss) bafore income taxas and equity in net loss (89) of affiliatedpanies.. ncome tax expenso Incoma (loss) bafore oquity in nat loss of affiliatod companios Equity in net loss af affiliatoc (90) compani Not incoma loss) 415 Consolidated Ratained Earnings Statament Rotainod earnings, 1/1 Not loss Profit dstribution doclarod Conversion of loan payable to aquity Ratainod earnings, Consolidated Balanco Shoct Assets Curent assats Cash and cash quivalents -... …… Securities availablo for sala Trade accounts rocrivablo.... Inventories Other curront assots Total curront assets (151) 415) 1,282) 1231 1,352 256 51 2,052 169 34Reconalin AdustnsUs IFRS Debit Cradit GAAP Non-current assats 11453 1,238 220 Proparty, plant and oquipmont Other non-curront assets Total non-curront assets Total assats Liabilities and sharaholdars oquity Curront liabilitias Short-torm dobt Trade accounts payabla Accruad ponsion cost Othor current Tabilties Total curront lisbilitios.-.... Long-tarm liabilitias Long-term dobt Financo loase obligation _.. . .-._...1,178 889 789 2,213 5,069 abilitios 6,200 439 1,488 Accruad Fabilitio Total long-torm liabilities Total liabilitias Sharcholders oquity Rotained carnings Unrealizod markt value adjustmmont 9,174 for sao Curmulative translation adjustmont.161 on securitios available f 39 Total sharaholdors oquity Total liabilities and sharaholders .1230 15,473 27. Differences between International Flnanclal Reporting Standards and U.S. Generally Accepted Accounting Princples The consolidated finandal statements of Swsscom have been prepared in accordance with Internationall Financlal Reporting Standards (IFRS), which differ In certain respects from generally accepted accounting prindples in the United States (U.S GAAP). Application of U.s. GAAP would have affected the balance sheet and net Income loss) to the extent described below. A description of the material differences beween IFRS and U.S. GAAP as they relate to Swisscom are discussed in further detall below Recondillation of net Income (loss) from IFRS to U.S. GAAP The folowng schedule Illustrates the significant adjustments to reconclle net Income (loss) in accordance with U.S. GAAP to the amounts determined under IFRS, for the current year ended December 31Current Year Ended Dacember 31 CHF in millions) Net income loss) according to IFRS U.S. GAAP adjustments ) Capitaization of intarest cost b Restructuring charga 415) 205 d) Capitalization of saftware o) Restructuring chargas by affi iates Not income according to US. GAAP Reconciliation of sharaholdars oquity from IFRS to US. GAAP 182 50 The following is a racondiiation of the significant adjustmants necessary to reconcilo sharoholdars equity in accordance with US. GAAP to the amounts datorminod undor IFRS as at Docomber 31 of the curront yosr Current Year Endad Docembor 31 CHF in millions) Sharaholdars equity according to IFRS U.S. GAAP adjustments )Copitalization of interest cast b) Restructuring chargas . 1,230 54 205 d) Capitalization of softwaro )Restructuring chargas by affiliates Sharaholdars equity according to US. GAAP 475 50 009 a) Capitalization of intorest cost Swisscom xpenses al intorest costs as incurrod. U.S GAAP roquires intorast costs incurred during the conetruction of property, plant and equipment to be capitalined. Undor US. GAAP Swiscom would have capitalinod CHF 13 milion and amortizod CHF5 milian for the curment yoar b) Rastructuring charges During the current yoar, Swisscom nocognined under FRS restructuring chargas totaing CHF 1,726 milion. The folowing schodula ilustrates adjustments necessary to reconcio thase charges to amount determined under U.S. GAAP Current Year CHF in millions Restructuring charges in accordanco with IFRS: 1,326 316 WdoweneahIFRS Write-down of long-ived accets. Miscellansous restructuring chargas... Total in accordance with IFRS Adjustments to restructuring chargas to accord with U.S. GAAP Rastructuring chargos in accordance with U.S. GAAP 1,726Currant Yoar (CHF in millions) Raconciliation of rastructuring chargas Restructuring charges according to U.S. GAAP are comprisod of the following: 1,228 209 84 Miscelianeous restructuring charges Restructuring charges in accordance with U.S. GAAP 1,521 Assume the coudarpart to the parsonnal restructuring charge atfects athar long-tarm lablibes d Dapreciation Expanso Due to the difficrence in carrying value of lang-livad as aftor write-downs described in (b), thare is a difference in the amount of doprociation axpense taken undor IFRS and US. GAAP An adjustment made for the curent yoar to rocced an additionsl CHF 5 milion of deprociation undar U.S. GAAP d) Capitalization of softwara Swisscom has cxpansed software costs as incurred. For US GAAP purposes extemal consultant costs incurred in the dovelopmant of software for internal use have boen capitaized. These costs aro boing amortined over a throe yoar penod. The cion af software costs acconds with common practice in tho U.S. telacommunicatiors industry Swiesscom has capitaliod, as dsclosod in tho roconciliation of nat income loss) and sharoholdors equity to U.S. GAAP CHF 220 milion and smortizod CHF 37 milion in the provious yoar and capitalined CHF 370 milion and amortined CHF 188 milion in the current yoar. o) Restructuring chargas of affiliates During the rrent year Swascom s share of personnel and other restructuring charges recorded by affiiates amounted to CHF 50 million These restructuring chargas do nat moot all the racognition critoria containod in EITE 94-3 and therefore cannot be cxparnsed in the curont year, undor ULS. GAAP

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024 RESTATEMENT OF SWISSCOMS FINANCIAL STATEMENTS FROM IFRS TO U.S. GAAP Reconciliation Adj Credit Particulars Consolidated statement of operations Net Revenues Capitalized Cost & Changes n inventories Total Goods & Services purchased Personal Expenses Other Operating Exps Depreciation & Amortization (5+5+188) Restructuring Charges Total opertaing Exps. Operting Income Interest Exps. Financial Income Icome/(Loss) before income tax & equity in loss of affiliated Companies Income Tax expenses Equity in net loss of affiliated companies Net Income/(Loss) IFRS Debit US GAAP 9842 277 10119 1666 2584 2090 1739 9842 277 10119 1296 2584 2090 1937 370 198 1726 9805 314 428 25 -89 205 1521 9428 691 -415 25 301 13 -325 -415 50 275 25 Sheet1 Sheet2Sheet3Consolidated Retained Earnings Statements Retained Earnings,1 /1 -151 339 188 (46+293) Net Loss Profit distribution Conversion of loan payable to equity -415 -1282 3200 1352 25 -1282 3200 2131 Reconciliation Adj Credit Particulars Consolidated Balance Sheet Assets Current assets Cash and equivalents Securities available for sale Trade accounts receivable Inventories Other current assets Total current assets Noncurrent assets Property, plant and equipment IFRS Debit US GAAF 256 51 2052 169 34 2562 256 51 2052 169 34 2562 11453 161 11609 (54+107) MI Sheet 1 , Sheet2 , Sheet3066 2562 Total current assets Noncurrent assets Property, plant and equipment 2562 11453 161 11609 (54+107) 1288 695 13592 16154 0 1178 889 789 2213 5069 0 6200 439 1488 709 240 9076 14145 50 475 1238 220 12911 15473 Investments Other noncurrent assets Total noncurrent assets Total assets Current liabilities Short-term debt Trade accounts payable Accrued pension cost Other current liabilities Total current liabilities Long-term liabilities Long-term debt Finance lease obligation Accrued pension cost Accrued liabilities Other long-term liabilities Total long-term liabilities Total liabilities 1178 889 789 2213 5069 6200 439 1488 709 338 9174 14243 98 5 Sheet1 Sheet? Sheet367 68 69 70 Shareholders equity Retained earnings Unrealized market value adjustment on securities available for sale Cumulative translation adjustment Total shareholders equity Total liabilities and shareholders equity 2131 1352 39 39 -161 1230 15473 161 2009 16154 72 73 74 75 76 IFRS US GAAP Difference Calculation of Ratios 1. Net income/Net revenues 2. Operating income/Net revenues 3. Operating income/Total assets 4. Net income/Total shareholders equity 5. Operating income/Total shareholders equity 0.2553 6. Current assets/Current liabilities 7. Total liabilities/Total shareholders equity 0.0422 0.0025 0.0319 0.02030.0428 0.3374 0.0124 10602 1.2006 1.1079 1.0369 0344 o.3473 0 -0.392 0.0702 78 79 0.51 11.58 0.51 7.04 B7 Sheet1 Sheet2 Sheet3

Reconciliation adjustment entries:

Debit Credit
a

Property, Plant & Equipment

Depreciation & Amortization

Interest Expense

Retained Earnings

54

5

13

46
b

Property, Plant & Equipment

Other Long-term liabilities

Restructuring Charges

107

98

205
c

Depreciation & Amortization

Property, Plant & Equipment

5

5
d

Other noncurrent assets

Depreciation & Amortization

Goods & SErvices

Retained Earnings

475

188

370

293
e

Investments

Equity in net loss of affiliate

50

50
982 982

Refer after 4th image uploaded:

Through the calculation of ratios it can be seen that the most affected ratio by the use of accounting standarsd is Operating income/Net revenues, whereas current ratio remains unaffected by the use of accounting standards.

Due to temporary non-availability of camera, images are uploaded after question has been answered. Student is kindly expected to go through adjustment entries first & then Images uploaded. Sorry for the inconvenience caused.

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