Air Canada 2007 Annual Report Download - page 87

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Consolidated Financial Statements and Notes
87
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF VALUATION
In accordance with Section 1625 of the CICA Handbook, Comprehensive Revaluation of Assets and Liabilities (“CICA 1625”),
Air Canada adopted fresh start reporting on September 30, 2004. As a result of the fi nancial reorganization under CCAA,
the assets and liabilities of the consolidated entity, excluding goodwill, were comprehensively revalued to fair values and a
revaluation adjustment of $4,234 was recorded as a credit to share capital.
As described in Note 3, for the periods prior to the initial public offering of shares of the Corporation, which closed on
November 24, 2006 (the “Air Canada IPO”), the fi nancial statements of the Corporation are combined to include the
fi nancial position, results of operations and cash fl ows of a number of entities that subsequently became subsidiaries of the
Corporation in conjunction with the Air Canada IPO.
B) PRINCIPLES OF CONSOLIDATION
These consolidated fi nancial statements include the accounts of the operations described in Note 1B above, with adjustments
for non-controlling interests. The consolidated fi nancial statements of the Corporation include the accounts of variable interest
entities for which the Corporation is the primary benefi ciary. All inter-company balances and transactions are eliminated.
C) USE OF ESTIMATES
The preparation of fi nancial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the fi nancial statements and accompanying notes. Actual results could differ from those estimates.
D) PASSENGER AND CARGO REVENUES
Airline passenger and cargo advance sales are deferred and included in current liabilities. Advance sales also include the
proceeds from the sale of fl ight tickets to Aeroplan, a related party that provides loyalty program services to Air Canada and
purchases seats from Air Canada under the Commercial Participation and Services Agreement (“CPSA” — refer to Note 2F).
Passenger and cargo revenues are recognized when the transportation is provided, except for revenue on unlimited fl ight
passes which is recognized on a straight-line basis over the period during which the travel pass is valid. The Corporation has
formed alliances with other airlines encompassing loyalty program participation, code sharing and coordination of services
including reservations, baggage handling and fl ight schedules. Revenues are allocated based upon formulas specifi ed in the
agreements and are recognized as transportation is provided.
The Corporation performs regular evaluations on the deferred revenue liability which may result in adjustments being
recognized as revenue. Due to the complex pricing structures; the complex nature of interline and other commercial
agreements used throughout the industry; historical experience over a period of many years; and other factors including
refunds, exchanges and unused tickets, certain relatively small amounts are recognized as revenue based on estimates.
Events and circumstances may result in actual results that are different from estimates; however these differences have
historically not been material.
E) CAPACITY PURCHASE AGREEMENTS – JAZZ & TIER III CARRIERS
Air Canada has capacity purchase agreements with certain unaffi liated regional carriers, which are referred to as Tier III
carriers, operating aircraft of 18 seats or less. Air Canada also has a capacity purchase agreement with Jazz, a related party
to the Corporation (refer to Note 19 for additional information). Under these agreements, Air Canada is responsible for
the marketing, ticketing and commercial arrangements relating to these fl ights and records the revenue it earns under
passenger revenue. Operating expenses under capacity purchase agreements include the capacity purchase fees and pass-
through costs, which are non-marked-up costs charged to the Corporation, which include fuel, airport and user fees and
other; these expenses are recorded in the applicable category within the operating expenses.
For the year ended December 31, 2007, passenger revenues under capacity purchase agreements with Tier III carriers
amounted to $71 ($68 - 2006). Refer to Note 19 for related party transaction amounts with Jazz.