Qantas 2013 Annual Report Download - page 111

109
QANTAS ANNUAL REPORT 2013
Useful lives and residual values are reviewed annually and
reassessed having regard to commercial and technological
developments, the estimated useful life of assets to the
Qantas Group and the long-term eet plan.
Finance Leased and Hire Purchase Assets
Leased assets under which the Qantas Group assumes
substantially all the risks and benets of ownership are
classied as nance leases. Other leases are classied
as operating leases.
Linked transactions involving the legal form of a lease are
accounted for as one transaction when a series of transactions
are negotiated as one or take place concurrently or in
sequence and cannot be understood economically alone.
Finance leases are capitalised. A lease asset and a lease
liability equal to the present value of the minimum lease
payments and guaranteed residual value are recorded at the
inception of the lease. Any gains and losses arising under sale
and leaseback arrangements are deferred and depreciated
over the lease term. Capitalised leased assets are depreciated
on a straight-line basis over the period in which benets are
expected to arise from the use of those assets. Lease payments
are allocated between the reduction in the principal component
of the lease liability and the interest element.
The interest element is charged to the Consolidated Income
Statement over the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the
lease liability.
Fully prepaid leases are classied in the Consolidated Balance
Sheet as hire purchase assets, to recognise that the nancing
structures impose certain obligations, commitments and/or
restrictions on the Qantas Group, which differentiate these
aircraft from owned assets.
Leases are deemed to be non-cancellable if signicant
nancial penalties associated with termination are anticipated.
Operating Leases
Rental payments under operating leases are charged to the
Consolidated Income Statement on a straight-line basis over
the term of the lease.
Any gains and losses arising under sale and leaseback
arrangements where the sale price is at fair value are recognised
in the Consolidated Income Statement as incurred. Where
the sale price is below fair value, any gains and losses are
immediately recognised in the Consolidated Income Statement,
except where the loss is compensated for by future lease
payments at below market price, it is deferred and amortised in
proportion to the lease payments over the period for which the
asset is expected to be used. Where the sale price is above fair
value, the excess over fair value is deferred and amortised over
the period for which the asset is expected to be used.
With respect to any premises rented under long-term operating
leases, which are subject to sub-tenancy agreements, provision
is made for any shortfall between primary payments to the head
lessor less any recoveries from sub-tenants. These provisions
are determined on a discounted cash ow basis, using a rate
reecting the cost of funds.
Maintenance and Overhaul Costs
An element of the cost of an acquired aircraft (owned and
nance leased aircraft) is attributed to its service potential,
reecting the maintenance condition of its engines and
airframe. This cost is depreciated over the shorter of the period
to the next major inspection event or the remaining life of the
asset or remaining lease term.
The costs of subsequent major cyclical maintenance checks
for owned and leased aircraft (including operating leases) are
capitalised and depreciated over the shorter of the scheduled
usage period to the next major inspection event or the
remaining life of the aircraft or lease term (as appropriate).
Maintenance checks, which are covered by the third party
maintenance agreements where there is a transfer of risk and
legal obligation, are expensed on the basis of hours own.
All other maintenance costs are expensed as incurred.
Modications that enhance the operating performance
or extend the useful lives of aircraft are capitalised and
depreciated over the remaining estimated useful life of the
asset or remaining lease term (as appropriate). Manpower
costs in relation to employees who are dedicated to major
modications to aircraft are capitalised as part of the cost
ofthemodication to which they relate.
Years
Res
i
dual Value
(
%
)
Buildings and leasehold improvement
s
1
0
–
40 0
1
Plant and equipment
3
– 20 0
Passenger aircraft and engine
s
2
.5 – 20 0 – 10
Freighter aircraft and engines
2
.5 – 2
00
– 2
0
Aircraft spare parts 15 – 20 0 – 20
1
Certain leases allow for the sale of leasehold im
p
rovements for fair value. In these instances the ex
p
ected fair value is used as the estimated residual value.