Air Canada 2006 Annual Report Download - page 84

X) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are tested for impairment whenever circumstances indicate that the carrying value may not be
recoverable. When events or circumstances indicate that the carrying amount of long-lived assets, other than
indefinite life intangibles, are not recoverable, the long-lived assets are tested for impairment by comparing the
estimate of future expected cash flows to the carrying amount of the assets or groups of assets. If the carrying
value is not recoverable from future expected cash flows, any loss is measured as the amount by which the
asset's carrying value exceeds fair value. Recoverability is assessed relative to undiscounted cash flows from
the direct use and disposition of the asset or group of assets.
Indefinite life intangible assets are subjected to impairment tests under Canadian GAAP on an annual basis or
when events or circumstances indicate a potential impairment. If the carrying value of such assets exceeds the
fair values, the assets are written down to fair value.
Y) INVESTMENTS
Investments not subject to significant influence are carried at cost and any declines in value that are determined
to be other than temporary are included in earnings. Earnings from such investments are recognized only to the
extent received or receivable.
Z) AIRCRAFT LEASE PAYMENTS IN EXCESS OF OR LESS THAN RENT EXPENSE
Total aircraft operating lease rentals over the lease term are amortized to operating expense on a straight-line
basis. Included in deferred charges and long-term liabilities is the difference between the straight line aircraft
rent expense and the payments as stipulated under the lease agreement.
AA) ASSET RETIREMENT OBLIGATIONS
The Corporation records an asset and related liability for the costs associated with the retirement of long-lived
tangible assets when a legal liability to retire such assets exists. The fair value of a liability for an asset
retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived
asset and then amortized over its estimated useful life. In subsequent periods, the asset retirement obligation is
adjusted for the passage of time and any changes in the amount of the underlying cash flows through charges
to earnings. A gain or loss may be incurred upon settlement of the liability.
BB) RELATED PARTY TRANSACTIONS
Related party transactions not in the normal course of operations are measured at the exchange amount when
the change in ownership interest in the item transferred is substantive and the exchange amount is supported
by independent evidence; otherwise it is recorded at the carrying amount. Related party transactions in the
normal course of operations are measured at the exchange amount.
CC) VARIABLE INTEREST ENTITIES
Aircraft and Engine Leasing Transactions
The Corporation has entered into aircraft and engine leasing transactions with a number of special purpose
entities that are variable interest entities (a “VIE”) under Accounting Guideline 15 of the CICA Handbook,
Variable Interest Entities (“AcG-15”). As a result of the adoption of AcG-15 and the Corporation being the
primary beneficiary of these VIEs, the Corporation consolidates leasing entities covering 51 aircraft and 22
engines.
Fuel Facilities Arrangements
The Corporation participates in fuel facilities arrangements operated through fuel facility corporations (the "Fuel
Facility Corporations"), along with other airlines to contract for fuel services at various major Canadian airports.
The Fuel Facility Corporations are organizations incorporated under federal or provincial business corporations
acts in order to acquire, finance and lease assets used in connection with the fuelling of aircraft and ground
support equipment. The Fuel Facilities Corporations operate on a cost recovery basis.
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