Air Canada 2007 Annual Report Download - page 93

Consolidated Financial Statements and Notes
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T) PROPERTY AND EQUIPMENT
Property and equipment is initially 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. 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 3-5 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 5 years.
Ground and other equipment is depreciated over 3 to 25 years.
U) INTEREST CAPITALIZED
Interest on funds used to fi nance the acquisition of new fl ight equipment and other property and equipment is capitalized
for periods preceding the dates that the assets are available for service. Capitalized interest related to the acquisition of
new fl ight equipment and other property and equipment is included in purchase deposits within Property and equipment
(refer to Note 4). Capitalized interest also includes fi nancing costs charged by the manufacturer on capital commitments
as described in Note 16.
V) INTANGIBLE ASSETS
As a result of the application of fresh start reporting, intangible assets were recorded at their estimated fair values at September
30, 2004. For periods subsequent to September 30, 2004, intangible assets are initially recorded at cost. Indefi nite life assets are
not amortized while assets with fi nite lives are amortized on a straight line basis to nil over their estimated useful lives.
Estimated
Useful Life
International route rights and slots Indefi nite
Air Canada trade name Indefi nite
Other marketing based trade names Indefi nite
Star Alliance membership 25 years
Other contract and customer based intangible assets 10 to 15 years
Technology based intangible assets 1 to 5 years
W) 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 amount 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 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.
Indefi nite life intangible assets are subjected to impairment tests 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.