Air Canada 2010 Annual Report Download - page 65

2010 Management’s Discussion and Analysis
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Accounting Policy Significant Accounting Policy Changes under IFRS and Expected Impact
Lease Under IAS 17 “Leases” (“IAS17”), a lease is classified as either a finance lease or an operating lease.
Lease classification depends on whether substantially all of the risks and rewards incidental to
ownership of a leased asset have been transferred from the lessor to the lessee, and is made at
inception of the lease. A number of indicators are used to assist in lease classification however,
quantitative thresholds are not offered as an indicator as under current Canadian GAAP.
In addition, under IAS 17, immediate gain recognition from the sale and leaseback of an asset depends
on whether or not the sale takes place at fair value, and whether the leaseback is classified as an
operating lease or a finance lease. Under existing Canadian GAAP, immediate gain recognition from the
sale and leaseback of an asset does not occur unless the leaseback is classified as an operating lease
and the seller-lessee retains the rights to use only a minor portion of the asset sold.
Policy choices: There are no policy choices available under IFRS.
Expected impact to the opening balance sheet: As described under Principles of consolidation, 21
capital leases are expected to be treated as owned aircraft financings upon the consolidation of the
special purpose leasing entities.
Other long-term liabilities are expected to decrease by $69 million offset by a decrease to the Deficit
for the reversal of deferred gains on sale leasebacks.
Expected impact subsequent to transition: Aircraft rent is expected to increase due to the
elimination of the deferred gains on sale leasebacks, which were amortizing to 2018 – 2020.
Borrowing Costs Under IAS 23R “Borrowing costs” (“IAS 23”), borrowing costs related to “qualifying” assets are
capitalized. Interest on both general borrowing and borrowings specific to the asset under construction
are eligible for capitalization. The capitalization of interest commences when borrowing costs are
incurred, expenditures for the asset are being incurred, and activities to prepare the asset for its
intended use or sale are in progress. Capitalization ceases when the activities necessary to prepare
the asset for its intended use or sale are substantially complete. Borrowing costs are capitalized at
the weighted average rate of both general borrowings and borrowings specific to the asset under
construction, as applicable.
Policy choices: There are no policy choices available under IFRS.
Differences from existing Canadian GAAP: Under existing Canadian GAAP, borrowing costs directly
attributable to property and equipment may be capitalized if certain conditions are met. There is no
specific standard however for the capitalization of interest and differences may arise with respect to
the identification of qualifying assets, the amount of interest that can be capitalized on general or
specific borrowings, the treatment of investment income on the temporary investment of specific
borrowings and when the capitalization of interest should commence or be suspended. Borrowing
costs were capitalized by the Corporation at the weighted average cost of all outstanding borrowings.
Expected impact to the opening balance sheet: No expected impact as previously capitalized
interest is not expected to be reversed.
Expected impact subsequent to transition: It is expected that there will be an ongoing difference
based on the difference in capitalization rates.