Air Canada 2009 Annual Report Download - page 97

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Consolidated Financial Statements and Notes
97
For fi nancial instruments measured at amortized cost, transaction costs or fees, premiums or discounts earned or incurred
are recorded, at inception, net against the fair value of the fi nancial instrument. Interest expense is recorded using the
effective interest method. For any guarantee issued that meets the defi nition of a guarantee pursuant to Accounting
Guideline 14, Disclosure of Guarantees, the inception fair value of the obligation relating to the guarantee is recognized and
amortized over the term of the guarantee. It is the Corporation’s policy to not re-measure the fair value of the fi nancial
guarantee unless it qualifi es as a derivative.
The Corporation has implemented the following classifi cations:
• Cash and cash equivalents and Short-term investments are classifi ed as held-for-trading and any period change in
fair value is recorded through interest income.
• Restricted cash is classifi ed as held-for-trading.
• Aircraft related and other deposits are classifi 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 classifi 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 classifi ed as other fi nancial liabilities and are measured at
amortized cost using the effective interest rate method. Interest income is recorded in net income, as applicable.
Effective January 1, 2009, the Corporation has adopted the enhanced disclosure requirements of amended CICA section
3862 Financial Instruments – Disclosures. Refer to Note 15 for a classifi cation of fair value measurements recognized in the
Consolidated Statement of Financial Position using a fair value hierarchy that refl ects the signifi cance of the inputs used in
making the measurements.
Fuel Derivatives Under Hedge Accounting
Prior to the Corporation discontinuing hedge accounting for all fuel derivatives effective the third quarter of 2009 as
described below, it had designated certain of its fuel derivatives as cash fl ow hedges. In a cash fl ow hedging relationship,
the effective portion of the change in the fair value of the hedging derivative is recognized in Other comprehensive income
(“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 qualifi es 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 reclassifi ed to fuel expense during the periods when the derivative matures. Refer to Note 15 for the impact of
fuel derivatives during the year.
After considering the costs and benefi ts specifi c to the application of cash fl ow hedge accounting, the Corporation elected
to discontinue hedge accounting for all fuel derivatives effective the third quarter of 2009. The derivative instruments will
continue to be recorded at fair value in each period with both realized and unrealized changes in fair value recognized
immediately in earnings in non-operating income (expense). Amounts deferred to AOCI for derivatives previously designated
under hedge accounting will be taken into fuel expense in the period in which the derivative was originally scheduled
to mature.
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).