Air Canada 2010 Annual Report Download - page 64

2010 Air Canada Annual Report
64
Accounting Policy Significant Accounting Policy Changes under IFRS and Expected Impact
Employee Benefits Presentation of employee benefits expense
Policy choices: IAS19 does not specify the presentation of current service cost, interest cost and the
expected return on plan assets as components or a single item of income or expense. Accordingly, the
Corporation can elect to present the components of pension cost (current service cost, interest cost
and the expected return on plan assets) either net or separately on the income statement.
Policy selection: The Corporation expects to elect to separately present the components of pension
expense on the income statement. Current service costs are expected to continue to be recorded in
operating expenses. Interest cost and the expected return on plan assets are expected to be presented
in non-operating expenses - financing costs.
Expected impact to the opening balance sheet: Pension and other benefit liabilities are expected
to increase by $2,776 million, offset by a charge to the Deficit. This includes the impact of IFRIC 14
and the IFRS 1 employee benefits optional exemption described above. The additional minimum
funding requirement liability under IFRIC 14 included in the adjustment is expected to amount to
approximately $1,937 million.
Expected impact subsequent to transition: The effect of actuarial gains and losses are no longer
expected to affect net income under the Corporation’s accounting policy choice; however, the pension
and other employee benefit liabilities and shareholders’ equity are expected to be subject to greater
variability as the effects of actuarial gains and losses will be recognized immediately, rather than being
deferred and amortized over a period of time.
The income related to the market return on plan assets is expected to be subject to more volatility as
it is based on actual plan assets as opposed to a smoothed value and based on the current value of plan
assets, the income may be lower than comparable values under Canadian GAAP.
Property and Equipment Capitalization of major engine and airframe overhaul
IAS 16 provides guidance that would require major engine and airframe overhaul costs be treated as
separate components of an aircraft if they meet a significant part of the asset’s cost. The actual cost
of the overhaul or inspection is then capitalized provided that it meets the recognition criteria, that it
is probable that future economic benefits will flow to the entity and that the cost can be measured
reliably. This inspection/overhaul cost is then depreciated over the period to the next inspection/
overhaul.
Cost/Revaluation Model
Policy choices: Either a cost model or a revaluation model can be used to value classes of property,
plant and equipment.
Policy selection: The Corporation expects to utilize the cost model.
Expected impact to the opening balance sheet: Property and equipment is expected to be reduced
by $301 million, offset by a charge to the Deficit, which includes (1) the impact of the fair value
adjustment to aircraft and spare engines as at January 1, 2010 as described above and (2) the impact
of componentizing the aircraft and adjusting the fair values based upon the estimated remaining life of
each component, including capitalized engine and airframe overhaul costs. The amount of $301 million
excludes the impact of the consolidation of special purpose entities (“SPEs”) as described above, which
has the effect of increasing property and equipment by $212 million for a net decrease of $89 million
to property and equipment.
Expected impact subsequent to transition: Depreciation and aircraft maintenance expense will be
different under IFRS on owned and finance leased aircraft. Major engine and airframe overhaul costs
that were charged to aircraft maintenance expense under Canadian GAAP on owned and finance leased
aircraft will be capitalized and depreciated over their estimated useful lives under IFRS. Major engine
and airframe overhaul costs that were charged to aircraft maintenance expense under Canadian GAAP
on operating lease aircraft will continue to be expensed as incurred, except for end of lease return
obligations which will be accrued during the term of the operating lease.