Air Canada 2009 Annual Report Download - page 68

2009 Air Canada Annual Report
68
Impairment of long-lived assets
Current accounting policy
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.
Expected IFRS accounting policy
Impairment testing of long-term assets is based on a two-step approach under current Canadian GAAP, while it is based
on comparing the carrying amount to the recoverable amount under IAS 36 Impairment of Assets (“IAS 36”). In addition,
IAS 36 requires, under certain circumstances, the reversal of impairment losses, which is not allowed under current
Canadian GAAP.
The Corporation will adopt this revised accounting policy on transition to IFRS.
Property and equipment
Current accounting policy
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 within 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 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 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.
Maintenance and repair costs for both leased and owned aircraft, including line maintenance, component overhaul and
repair, and maintenance checks, are charged to Operating expenses as incurred, with the exception of maintenance and
repair costs related to return conditions on short-term aircraft leases, which are accrued over the term of the lease. Line
maintenance consists of routine daily and weekly scheduled maintenance inspections and checks, overhaul and repair
involves the inspection or replacements of major parts, and maintenance checks consist of more complex inspections and
servicing of the aircraft.