EasyJet 2010 Annual Report Download - page 62

easyJet plc
Annual report and accounts 2010
Notes to the accounts
60
1 Accounting policies
Statement of compliance
easyJet plc (the “Company”) and its subsidiaries (“easyJet” or the “Group” as applicable) is a low cost airline carrier operating principally
in Europe. The Company is a public limited company whose shares are listed on the London Stock Exchange under the ticker symbol EZJ
and is incorporated and domiciled in the United Kingdom. The address of its registered office is Hangar 89, London Luton Airport,
Bedfordshire LU2 9PF.
The accounts are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union,
taking into account International Financial Reporting Interpretations Committee (IFRIC) interpretations and those parts of the Companies
Act 2006 applicable to companies reporting under IFRS.
Basis of preparation
The accounts are prepared based on the historical cost convention except for certain financial assets and liabilities including derivative
financial instruments that are measured at fair value.
The accounting policies set out below have been applied consistently to all years presented in these accounts.
In adopting the going concern basis for preparing the accounts, the Directors have considered the business activities as set out on pages 8
to 13 as well as easyJet’s principal risks and uncertainties as set out on pages 25 to 27. Based on easyJet’s cash flow forecasts and
projections, the Board is satisfied that easyJet will be able to operate within the level of its facilities and available cash for the foreseeable
future. For this reason easyJet continues to adopt the going concern basis in preparing its accounts.
Significant judgements, estimates and critical accounting policies
The preparation of accounts in conformity with generally accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the accounts and the reported amounts of income and expenses
during the reporting period. Although these estimates are based on management’s best knowledge of the amount, events or actions may
mean that actual results ultimately differ from those estimates, and these differences may be material. The estimates and the underlying
assumptions are reviewed regularly.
The following three accounting policies are considered critical accounting policies as they require a significant amount of management
judgement and the results are material to easyJet’s accounts.
Goodwill and landing rights (note 7)
Goodwill and landing rights are tested for impairment at least annually. easyJet has one cash-generating unit, being its route network.
In making this assessment, easyJet has considered the manner in which the business is managed including the centralised nature of its
operations and the ability to open or close routes and redeploy aircraft and crew across the whole route network.
The value in use of the cash-generating unit is determined by discounting future net cash flows to their present value. When applying this
method, easyJet relies on a number of estimates including its strategic plans, fuel prices, exchange rates, long-term economic growth rates
for the principal countries in which it operates and its pre-tax weighted average cost of capital.
Aircraft maintenance provisions (note 17)
easyJet incurs liabilities for maintenance costs in respect of aircraft leased under operating leases during the term of the lease. These arise
from legal and constructive contractual obligations relating to the condition of the aircraft when it is returned to the lessor. To discharge
these obligations, easyJet will also normally need to carry out one heavy maintenance check on each of the engines and the airframe
during the lease term.
A charge is made in the income statement based on hours or cycles flown to provide for the cost of these obligations. Estimates required
include the likely utilisation of the aircraft, the expected cost of the heavy maintenance check at the time it is expected to occur, the
condition of the aircraft and the lifespan of life-limited parts.
The bases of all estimates are reviewed annually, and also when information becomes available that is capable of causing a material change
to an estimate, such as renegotiation of end of lease return conditions, increased or decreased utilisation, or changes in the cost of heavy
maintenance services.
Tax (note 5)
In drawing up the accounts, estimates are made of current and deferred tax assets and liabilities for each jurisdiction in which easyJet
operates. These estimates are affected by transactions and calculations where the ultimate tax determination was uncertain at the time the
accounts were finalised. The issues involved are often complex and may take an extended period to resolve. Where the final tax outcome
of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax assets
and liabilities in the period in which such determination is made.