Air Canada 2010 Annual Report Download - page 58

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2010 Air Canada Annual Report
58
Fair value under Canadian GAAP is defined 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 significant management estimates on discount rates to be applied in the analysis and future cash
flows to be generated by the assets, including the estimated useful life of the assets. Discount rates are determined with
reference to estimated risk adjusted market rates of return for similar cash flows. Air Canada performs sensitivity analysis
on the discount rates applied. The discount rates used are subject to measurement uncertainty.
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 within variable interest entities are depreciated to estimated
residual values over the life of the lease. Air Canada’s aircraft and flight equipment, including spare engines and related parts
(“rotables”), are depreciated over 20 to 25 years, with 10 to 20% estimated residual values. Aircraft reconfiguration costs
are amortized over three to five 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 five years. Ground and
other equipment is depreciated over three to 25 years.
Aircraft depreciable life is determined through economic analysis, a review of existing fleet plans and comparisons to other
airlines operating similar fleet types. Residual values are estimated based on Air Canada’s historical experience with regard
to the sale of aircraft and spare parts, as well as forward-looking valuations prepared by independent third parties.