Air New Zealand 2014 Annual Report Download - page 15

AIR NEW ZEALAND ANNUAL FINANCIAL RESULTS 2014 13
DEPRECIATION
Aircraft
Depreciation of the aircraft fleet is calculated to write down the cost of these assets on a straight line basis to an estimated residual value
over their economic lives. The aircraft and related engines, simulators and spares are being depreciated on a straight line basis as follows:
Airframe 10 - 22 years
Engines 5 – 17 years
Engine overhauls period to next overhaul
The residual values of aircraft are reviewed annually by reference to external projected values.
Non-aircraft
Non-aircraft assets are depreciated on a straight line basis using the following estimated economic lives:
Buildings 50 – 100 years
Aircraft specific plant and equipment 10 – 20 years
Non-aircraft specific leasehold improvements, plant, equipment, furniture and vehicles 2 - 10 years
Gains and losses on disposal are determined by comparing proceeds with carrying amounts. These are included in the Statement of
Financial Performance.
INTANGIBLE ASSETS
Goodwill
Goodwill represents the cost of an acquisition over and above the fair value of the Group’s share of the net identifiable assets acquired.
Goodwill arising on acquisition of a subsidiary is included in intangible assets. Goodwill arising on acquisition of an associate or joint
venture is included in the carrying value of the investment in that associate or joint venture. Goodwill is tested annually for impairment
and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
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 have a finite life and are amortised on a straight-line basis over their estimated useful lives of three to six years.
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Development costs
Expenditure related to development costs which is applied to external customer products and services is recognised as an asset and
stated at cost. The assets are amortised on a straight line basis over the period of the expected benefits. All other development costs
are recognised in the Statement of Financial Performance as incurred.
IMPAIRMENT
Impairment of financial assets at amortised cost
Financial assets carried at amortised cost are assessed each reporting date for impairment. If there is objective evidence of impairment,
the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial
asset’s original effective interest rate, where appropriate, is recognised in the Statement of Financial Performance.
Impairment of non-financial assets
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 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.
Aircraft which have been withdrawn from service and have no intention of being reintroduced into the operating fleet, or there has been
a significant decline in operating requirements, are assessed for impairment on an individual basis.
STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
FOR THE YEAR TO 30 JUNE 2014