Qantas 2006 Annual Report Download - page 139

137
Qantas Annual Report 2006
Notes to the Financial Statements
for the year ended 30 June 2006
Other Leases
A-IFRS requires the lease expense to be recognised on a straight-line basis.
An A-IFRS transition adjustment is therefore required for leases with a pre-
determined rent escalation.
At the date of transition, an increase in payables of $9.2 million and
consequential decrease in retained earnings of $6.4 million is recognised
after a tax benefit of $2.8 million.
Applying A-IFRS to other leases for the year ended 30 June 2005 results
in a $11.7 million increase in profit before related income tax expense.
(D) PROPERTY, PLANT AND EQUIPMENT
Under both previous GAAP and A-IFRS, items of property, plant and
equipment are initially recorded at their cost of acquisition at the date of
acquisition, being the fair value of the consideration provided plus
incidental costs directly attributable to the acquisition. Major modifications
to aircraft and the costs associated with placing the aircraft into service are
capitalised as part of the cost of the asset to which they relate.
Transition Exemption
As permitted by AASB 1 – First-time Adoption of A-IFRS, Qantas has elected
to deem the cost of land and buildings under A-IFRS to be the carrying
value at the date of transition. At the date of transition, a decrease in the
asset revaluation reserve of $55.5 million (Qantas: $82.9 million) is
recognised with a consequential increase in retained earnings of $55.5
million (Qantas: $82.9 million).
Major Inspections
Under previous GAAP, all aircraft maintenance and inspection costs were
expensed as incurred. Under A-IFRS, the cost of major inspections of
airframes and engines is capitalised and depreciated over the scheduled
usage period to the next major inspection event. All other aircraft
maintenance costs were expensed as incurred.
At the date of transition, a decrease in property, plant and equipment of
$57.5 million with a consequential decrease in retained earnings of $40.3
million is recognised after a tax benefit of $17.2 million.
Applying A-IFRS to aircraft inspection costs for the year ended 30 June 2005
results in a $8.7 million increase in aircraft depreciation and operating costs.
Software Development Costs
Under A-IFRS, software development costs that meet the criteria to be
recognised as internally generated intangible assets are capitalised.
At the date of transition, a decrease in property, plant and equipment of
$141.8 million (Qantas: $141.8 million) and an increase in intangible assets
of $141.8 million (Qantas: $141.8 million) is recognised increasing to
$160.0 million (Qantas: $160.0 million) at 30 June 2005. There is no effect
on retained earnings.
(E) INCOME TAXES
On transition to A-IFRS, the balance sheet method of tax effect accounting
was adopted, rather than the ‘profit and loss’ method previously applied
under previous GAAP. Under the balance sheet approach, income tax on
the profit and loss for the year comprises both current and deferred taxes.
Broadly, temporary differences were differences between the carrying
amount of assets and liabilities for financial reporting purposes and the
amount attributed to those assets and liabilities for taxation purposes.
Temporary differences may give rise to deferred tax assets or deferred
tax liabilities.
A deferred tax liability is required to be recognised, subject to some
exceptions. A deferred tax asset shall be recognised only to the extent that
it is probable that future taxable profits will be available against which the
deductible temporary difference can be utilised, subject to some exceptions.
At the date of transition, excluding the tax effect of adjustments generated
by the adoption of other A-IFRS standards, applying A-IFRS results in an
increase in deferred tax liabilities of $2.1 million and an increase in capital
of $8.2 million. These were recognised after a decrease in retained earnings
of $10.3 million.