Air Canada 2012 Annual Report Download - page 102

2012 Air Canada Annual Report
102
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the amounts reported in these financial statements and accompanying notes. These estimates and associated
assumptions are based on historical experience, future operating plans and various other factors believed to be reasonable
under the circumstances, and the results of such estimates form the basis of judgments about carrying values of assets and
liabilities. These underlying assumptions are reviewed on an ongoing basis. Actual results could differ materially from those
estimates.
Significant estimates made in the preparation of these financial statements include, but are not limited to, the following areas,
with further information contained in the applicable accounting policy or note:
 Employee future benefits
– The cost and related liabilities of the Corporation’s pensions, other post-retirement and post-employment benefit
programs are determined using actuarial valuations. The actuarial valuations involve assumptions including discount
rates, expected rates of return on assets, future salary increases, mortality rates and future benefit increases. Also, due
to the long-term nature of these programs, such estimates are subject to significant uncertainty. Refer to Note 9 for
additional information.
 Depreciation and amortization period for long-lived assets
– The Corporation makes estimates about the expected useful lives of long-lived assets and the expected residual values
of the assets based on the estimated current fair value of the assets, the Corporation’s fleet plans and the cash flows
they generate. Changes to these estimates, which can be significant, could be caused by a variety of factors, including
changes to maintenance programs, changes in utilization of the aircraft, and changing market prices for new and used
aircraft of the same or similar types. Estimates and assumptions are evaluated at least annually. Generally, these
adjustments are accounted for on a prospective basis, through depreciation and amortization expense. For the
purposes of sensitivity analysis on these estimates, a 50% reduction to residual values on aircraft with remaining
useful lives greater than five years results in an increase of $17 to annual depreciation expense. For aircraft with
shorter remaining useful lives, the residual values are not expected to change significantly.
 Impairment considerations on long-lived assets
– An impairment test is performed by comparing the carrying amount of the asset or cash-generating unit to their
recoverable amount, which is calculated as the higher of an asset’s or cash-generating unit’s fair value less costs to sell
and its value in use. Value in use is calculated based upon a discounted cash flow analysis, which requires management
to make a number of significant assumptions including assumptions relating to future operating plans, discount rates
and future growth rates. Refer to Notes 5 and 6 for additional information.
 Maintenance provisions
– The recording of maintenance provisions related to return conditions on aircraft leases requires management to make
estimates of the future costs associated with the maintenance events required under the lease return condition and
estimates of the expected future maintenance condition of the aircraft at the time of lease expiry. These estimates
take into account current costs of these maintenance events, estimates of inflation surrounding these costs as well as
assumptions surrounding utilization of the related aircraft. Any difference in the actual maintenance cost incurred and
the amount of the provision is recorded in maintenance expense in the period. The effect of any changes in estimates,
including changes in discount rates, inflation assumptions, cost estimates or lease expiries, is also recognized in
maintenance expense in the period. Refer to Note 10(a) for additional information.