Air Canada 2012 Annual Report Download - page 93

2012 Consolidated Financial Statements and Notes
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Maintenance and repair costs related to return conditions on aircraft leases are recorded over the term of the lease for the end
of lease maintenance return condition obligations within the Corporation’s operating leases, offset by a prepaid maintenance
asset to the extent of any related power-by-the-hour maintenance service agreements or any recoveries under aircraft
subleasing arrangements. The provision is recorded within Maintenance provisions using a discount rate taking into account
the specific risks of the liability over the remaining term of the lease. Interest accretion on the provision is recorded in Other
non-operating expense. For aircraft under operating leases which are subleased to third parties, the expense relating to the
provision is presented net on the income statement of the amount recognized for any reimbursement of maintenance cost
which is the contractual obligation of the sublessee. The reimbursement is recognized when it is virtually certain that
reimbursement will be received when the Corporation settles the obligation. Any changes in the maintenance cost estimate,
discount rates, timing of settlement or difference in the actual maintenance cost incurred and the amount of the provision is
recorded in Aircraft maintenance in the period.
K) OTHER OPERATING EXPENSES
Included in Other operating expenses are expenses related to building rent and maintenance, airport terminal handling costs,
professional fees and services, crew meals and hotels, advertising and promotion, insurance costs, ground costs for Air Canada
Vacations packages, and other expenses. Other operating expenses are recognized as incurred.
L) FINANCIAL INSTRUMENTS
Under the Corporation's risk management policy, derivative financial instruments are used only for risk management purposes
and not for generating trading profits.
Financial assets and financial liabilities, including derivatives, are recognized on the Consolidated Statement of Financial
Position when the Corporation becomes a party to the contractual provisions of the financial instrument or derivative
contract. All financial instruments are required to be measured at fair value on initial recognition. The Corporation’s own
credit risk and the credit risk of the counterparty are taken into consideration in determining the fair value of financial assets
and financial liabilities, including derivative instruments. Measurement in subsequent periods is dependent upon the
classification of the financial instrument. The Corporation classifies its financial assets as either fair value through profit or
loss (“FVTPL”), loans and receivables, held to maturity or available-for-sale. The classification depends on the purpose for
which the financial assets were acquired.
Management determines the classification of its financial assets at initial recognition. Financial assets at FVTPL are financial
assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the
short term. Derivatives are also categorized as held for trading unless they are designated as hedges. Loans and receivables are
non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Held-to-maturity
financial assets are non-derivatives that have fixed and determinable payments and the entity has the ability and intent to
hold the asset until maturity. Available-for-sale financial assets are non-derivatives that are either designated in this category
or not classified in any of the other categories. For financial instruments classified as other than held-for-trading, transaction
costs are added to the initial fair value of the related financial instrument. Financial assets and financial liabilities classified as
held-for-trading are measured at FVTPL. Financial assets classified as held-to-maturity, loans and receivables, or other
financial liabilities are measured at amortized cost using the effective interest rate method.
The Corporation assesses at the end of each reporting period whether there is objective evidence that a financial asset or a
group of financial assets is impaired. For loans and receivables, the amount of the loss is measured as the difference between
the asset’s carrying value and the present value of estimated future cash flows. The carrying amount of the asset is reduced by
the amount of the loss and the latter is recognized in the Consolidated Statement of Operations. In the case of equity
investments classified as available-for-sale, a significant or prolonged decline in the fair value of the investment below its cost
is evidence that the asset is impaired. If such evidence exists for available-for-sale financial assets, the cumulative loss –
measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognized in the Consolidated Statement of Operations – is removed from equity and recognized in the
Consolidated Statement of Operations. Impairment losses recognized on equity instruments are not reversed through the
Consolidated Statement of Operations.