EasyJet 2010 Annual Report Download - page 64

easyJet plc
Annual report and accounts 2010
Notes to the accounts
continued
62
1 Accounting policies continued
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated to write off the cost, less
estimated residual value, of assets on a straight-line basis over their expected useful lives. Expected useful lives are reviewed annually.
Expected useful life
Aircraft 23 years
Aircraft spares 14 years
Aircraft improvements 3–7 years
Aircraft – prepaid maintenance 3–10 years
Leasehold improvements 5–10 years or the length of lease if shorter
Fixtures, fittings and equipment 3 years or length of lease of property where equipment is used
if shorter
Computer hardware 5 years
Items held under finance leases are depreciated over the shorter of the lease term and their expected useful lives, as shown above.
Residual values, where applicable, are reviewed annually against prevailing market rates at the balance sheet date for equivalently aged
assets and depreciation rates adjusted accordingly on a prospective basis. The carrying value is reviewed for impairment if events or
changes in circumstances indicate that the carrying value may not be recoverable.
An element of the cost of a new aircraft is attributed on acquisition to prepaid maintenance and is depreciated over a period ranging from
three to ten years from the date of manufacture. Subsequent costs incurred which lend enhancement to future periods, such as long-term
scheduled maintenance and major overhaul of aircraft and engines, are capitalised and depreciated over the length of period benefiting
from these enhancements. All other maintenance costs are charged to the income statement as incurred.
The cost of new aircraft comprises the invoiced price of the aircraft from the supplier less the estimated value of other assets received
by easyJet for nil consideration. These other assets principally comprise cash (recognised as an asset) and aircraft spares and service credits.
Pre delivery and option payments made in respect of aircraft are recorded in property, plant and equipment at cost. These amounts are
not amortised.
Gains and losses on disposals are determined by comparing the net proceeds with the carrying amount and are recognised in the
income statement.
Impairment of non-current assets
An impairment loss is recognised to the extent that the carrying value exceeds the higher of the asset’s fair value less cost to sell and its
value in use. Impairment losses recognised on assets other than goodwill are only reversed where changes in the estimates used result in
an increase in recoverable amount. Impairment losses recognised on goodwill are not reversed.
Leases
Non-contingent operating lease rentals are charged to the income statement on a straight-line basis over the life of the lease. A number
of operating leases require easyJet to make contingent rental payments based on variable interest rates; these are expensed as incurred.
easyJet enters into sale and leaseback transactions whereby it sells to a third party rights to acquire aircraft. On delivery of the aircraft,
easyJet subsequently leases the aircraft back, by way of an operating lease. Surpluses arising on disposal, where the price that the aircraft
is sold for is above fair value, are recognised in deferred income and amortised on a straight-line basis over the lease term of the asset.
Finance leases, which transfer to easyJet substantially all the risks and benefits incidental to ownership of the leased item, are recognised
at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments.
Any directly attributable costs of entering into financing sale and leasebacks are included in the value of the asset recognised. Lease
payments are apportioned between the finance charges and the reduction of the lease liability so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are included in interest payable and other financing charges.