Air Canada 2007 Annual Report Download - page 60

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2007 Air Canada Annual Report
60
Cash Tax Projections
As at December 31, 2007, Air Canada has substantial tax attributes largely in the form of undepreciated capital cost and
other tax attributes to shelter future taxable income. These tax attributes are expected to continue to increase over the next
several years due to capital expenditures related to aircraft acquisitions. Air Canada does not forecast having any signifi cant
current taxes payable within the foreseeable future.
Impairment of Long-Lived Assets
Long-lived assets are tested for impairment whenever circumstances indicate that the carrying value may not be recoverable.
When events or circumstances indicate that the carrying value of long-lived assets, other than indefi nite life intangibles, are
not recoverable, the long-lived assets are tested for impairment by comparing the estimate of future expected cash fl ows
to the carrying amount of the assets or groups of assets. If the carrying value of long-lived assets is not recoverable from
future expected cash fl ows, any loss is measured as the amount by which the asset’s carrying value exceeds fair value and
recorded in the period. Recoverability is assessed relative to undiscounted cash fl ows from the direct use and disposition
of the asset or group of assets. Assessing the fair value of intangible assets requires signifi cant management estimates on
future cash fl ows to be generated by the assets, including the estimated useful life of the assets.
Property and Equipment
Property and equipment is originally recorded at cost. Property under capital leases and the related obligation for future
lease payments are initially recorded at an amount equal to the lesser of fair value of the property or equipment and the
present value of those lease payments.
Property and equipment are depreciated to estimated residual values based on the straight-line method over their estimated
service lives. Property and equipment under capital leases and variable interest entities are depreciated to estimated
residual values over the life of the lease. Air Canada’s aircraft and fl ight equipment, including spare engines and related
parts (“rotables”), are depreciated over 20 to 25 years, with 10 to 20% estimated residual values. Aircraft reconfi guration
costs are amortized over three to fi ve years. Betterments to owned aircraft are capitalized and amortized over the remaining
service life of the aircraft. Betterments to aircraft on operating leases are amortized over the term of the lease.
Buildings are depreciated over their useful lives not exceeding 40 to 50 years on a straight-line basis. An exception to this
is where the useful life of the building is greater than the term of the land lease. In these circumstances, the building is
depreciated over the life of the lease. Leasehold improvements are amortized over the lesser of the lease term or fi ve years.
Ground and other equipment is depreciated over three to 25 years.
Aircraft depreciable life is determined through economic analysis, a review of existing fl eet plans and comparisons to other
airlines operating similar fl eet types. Residual values are estimated based on the Corporation’s historical experience with
regard to the sale of aircraft and spare parts, as well as forward-looking valuations prepared by independent third parties.
Intangible Assets
The identifi able intangible assets of the Corporation were recorded at their estimated fair values at September 30, 2004.
Indefi nite-life intangible assets are subject to impairment tests under Canadian GAAP on an annual basis or when events
or circumstances indicate a potential impairment. If the carrying value of such assets exceeds the fair values, the assets are
written down to fair value.
Fair value under Canadian GAAP is defi ned as “the amount of the consideration that would be agreed upon in an arm’s
length transaction between knowledgeable, willing parties who are under no compulsion to act”. Assessing the fair value of
intangible assets requires signifi cant management estimates on future cash fl ows to be generated by the assets, including
the estimated useful life of the assets.