Air Canada 2006 Annual Report Download - page 83

R) RESTRICTED CASH
As at December 31, 2006, the Corporation has recorded $109 (2005 – $86) in restricted cash, under current
assets, representing funds held in trust by Air Canada Vacations in accordance with regulatory requirements
governing advance ticket sales, recorded under current liabilities, for certain travel related activities.
S) SPARE PARTS, MATERIALS AND SUPPLIES
Spare parts, materials and supplies are valued at the lower of average cost and net realizable value. A provision
for the obsolescence of flight equipment spare parts is accumulated over the estimated service lives of the
related flight equipment to a 30% residual value.
T) PROPERTY AND EQUIPMENT
Property and equipment is originally recorded at cost. Property under capital leases and the related obligation
for future lease payments are initially recorded at an amount equal to the lesser of fair value of the property or
equipment and the present value of those lease payments. On the application of fresh start accounting effective
September 30, 2004, the cost of the Corporation's property and equipment was adjusted to fair value. In
addition, the estimated useful lives of certain assets were also adjusted, including buildings where useful lives
were extended to periods not exceeding 50 years.
Property and equipment are depreciated to estimated residual values based on the straight-line method over
their estimated service lives. Property and equipment under capital leases and variable interest entities are
depreciated to estimated residual values over the life of the lease. Aircraft and flight equipment are depreciated
over 20 to 30 years, with 10% to 20% estimated residual values. Aircraft reconfiguration costs are amortized
over 3 years. Betterments to owned aircraft are capitalized and amortized over the remaining service life of the
aircraft. Betterments to aircraft on operating leases are amortized over the term of the lease.
Buildings are depreciated over their useful lives not exceeding 40 to 50 years on a straight line basis. An
exception to this is where the useful life of the building is greater than the term of the land lease. In these
circumstances, the building is depreciated over the life of the lease. Leasehold improvements are amortized
over the lesser of the lease term or 5 years. Ground and other equipment is depreciated over 3 to 25 years.
U) INTEREST CAPITALIZED
Interest on funds used to finance the acquisition of new flight equipment and other property and equipment is
capitalized for periods preceding the dates that the assets are available for service. Capitalized interest related
to the acquisition of new flight equipment and other property and equipment is included in purchase deposits
within Property and equipment (refer to Note 3). Capitalized interest also includes financing costs charged by
the manufacturer on capital commitments as described in Note 15.
V) DEFERRED FINANCING COSTS
Deferred financing costs are amortized on an effective interest basis over the term of the related obligation.
W) INTANGIBLE ASSETS
As a result of the application of fresh start reporting, intangible assets were recorded at their estimated fair
values at September 30, 2004. Indefinite life assets are not amortized while assets with finite lives are
amortized to nil over their estimated useful lives.
Estimated
Useful Life
International route rights and slots Indefinite
Air Canada trade name Indefinite
Other marketing based trade names Indefinite
Star Alliance membership 25 years
Other contract and customer based intangible assets 10 to 15 years
Technology based intangible assets 1 to 5 years
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Combined Consolidated Financial Statements 2006