Air Canada 2008 Annual Report Download - page 100

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2008 Air Canada Annual Report
100
The Corporation has implemented the following classifications:
• CashandcashequivalentsandShort-terminvestmentsareclassiedasheld-for-tradingandanyperiodchangein
fair value is recorded through net income.
• Aircraftrelatedandotherdepositsareclassiedasheld-to-maturityinvestmentsandaremeasuredatamortized
cost using the effective interest rate method. Interest income is recorded in net income, as applicable.
• Accountsreceivableareclassiedasloansandreceivablesandaremeasuredatamortizedcostusingtheeffective
interest rate method. Interest income is recorded in net income, as applicable.
• Accountspayable,creditfacilities,andbankloansareclassiedasothernancialliabilitiesandaremeasuredat
amortized cost using the effective interest rate method. Interest income is recorded in net income, as applicable.
Fuel Derivatives Under Hedge Accounting
The Corporation has designated certain of its fuel derivatives as cash flow hedges. In a cash flow hedging relationship, the
effective portion of the change in the fair value of the hedging derivative is recognized in OCI while the ineffective portion
is recognized in Non-operating income (expense). Upon maturity of the fuel derivatives, the effective gains and losses
previously recognized in Accumulated OCI (“AOCI”) are recorded in fuel expense.
Hedge accounting is discontinued prospectively when the derivative no longer qualifies as an effective hedge, or the derivative
is terminated or sold, or upon the sale or early termination of the hedged item. The amounts previously recognized in AOCI
are reclassified to fuel expense during the periods when the derivative matures. Refer to Note 15 for the impact of fuel
derivatives during the year.
M) FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates of exchange
in effect at the date of the Consolidated Statement of Financial Position. Non-monetary assets and liabilities, revenues
and expenses arising from transactions denominated in foreign currencies, are translated at the historical exchange rate
or the average exchange rate during the period, as applicable. Adjustments to the Canadian dollar equivalent of foreign
denominated monetary assets and liabilities due to the impact of exchange rate changes are recognized in Foreign exchange
gain (loss).
N) INCOME TAXES
The Corporation utilizes the asset and liability method of accounting for income taxes under which future income tax
assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the
financial statement carrying amount and the tax basis of assets and liabilities. Future income tax assets and liabilities are
measured using substantively enacted tax rates in effect for the year in which those temporary differences are expected to
be recovered or settled. Income taxes are recognized in the income statement except to the extent that it relates to items
charged or credited to Shareholders’ equity, in which case the taxes are netted with such items. The effect on future income
tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the change is substantively
enacted. Future income tax assets are recognized to the extent that realization is considered more likely than not. The
Corporation applied fresh start reporting on September 30, 2004 under which the assets and liabilities of the Corporation
were comprehensively revalued, excluding goodwill (“fresh start”). The benefit of future income tax assets that existed
at fresh start, and for which a valuation allowance is recorded, will be recognized first to reduce to nil any remaining
intangible assets (on a pro-rata basis) that were recorded upon fresh start reporting with any remaining amount as a
credit to Shareholders’ equity. The benefit of future income tax assets that arise after fresh start will be recognized in the
Consolidated Statement of Operations.