Air New Zealand 2008 Annual Report Download - page 13

AIR NEW ZEALAND
STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
Computer software and licences
Computer software acquired, which is not an integral part of a related hardware item, is recognised as an intangible asset. The costs incurred internally
in developing computer software are also recognised as intangible assets where the Group has a legal right to use the software and the ability to obtain
future economic benefits from that software. Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software.
These assets are amortised on a straight-line basis over their estimated useful lives of three to five years.
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
IMPAIRMENT
Non-financial assets are reviewed at each reporting date to determine whether there are any indicators that the carrying amount may not be recoverable.
If any such indicators exist, the asset’s recoverable amount is estimated. The recoverable amount is the higher of an asset’s fair value less costs to
sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised in the Statement of
Financial Performance for the amount by which the asset’s carrying amount exceeds its recoverable amount. For the purposes of assessing impairment,
assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units).
Aircraft are operated by the airline as a single network and are assessed for impairment as one cash-generating unit, inclusive of related infrastructural
assets. Estimated net cash flows used in determining recoverable amounts are based on the directors’ current assessment of the Group’s future trading
prospects and the assets’ ultimate net sale proceeds and have been discounted to their net present value.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no
impairment loss been recognised in prior years.
NON-CURRENT ASSETS HELD FOR SALE
Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use.
The sale must be highly probable and the asset available for immediate sale in its present condition. Management must be committed to the sale, which
should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets classified as held for sale are measured at the lower of the asset’s previous carrying amount and its fair value less costs to sell.
WORK IN PROGRESS
Contract work in progress is stated at cost plus the profit recognised to date, using the percentage of completion method, less any amounts invoiced to
customers. Cost includes all expenses directly related to specific contracts and an allocation of direct production overhead expenses incurred.
Capital work in progress includes the cost of materials, services, labour and direct production overheads.
INVENTORIES
Inventories are measured at the lower of cost and net realisable value. Cost is determined using the weighted average cost method. Net realisable value
is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
SHARE CAPITAL
Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of taxation, from the proceeds.
Where a member of the Group purchases the Company’s share capital, the consideration paid is deducted from equity under the treasury stock method,
until they are reissued or otherwise disposed of.
FINANCIAL GUARANTEE CONTRACTS
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company
considers these to be insurance contracts (as defined by NZ IFRS 4: Insurance Contracts) and accounts for them as such.
TAXATION
The income taxation expense for the period is the taxation payable on the current period’s taxable income at tax rates enacted or substantively enacted
at reporting date. This is adjusted by changes in deferred taxation assets and liabilities. Income taxation expense is recognised in the Statement of
Financial Performance except where it relates to items recognised directly in equity, in which case it is recognised in equity.
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