Air Canada 2010 Annual Report Download - page 66

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2010 Air Canada Annual Report
66
Accounting Policy Significant Accounting Policy Changes under IFRS and Expected Impact
Fresh Start Reporting Under IFRS, there are no explicit standards related to fresh start reporting or when an entity undertakes
a financial reorganization.
Differences from existing Canadian GAAP: Under Canadian GAAP, the Corporation applied fresh start
reporting on September 30, 2004. As a result, all consolidated assets and liabilities of Air Canada were
reported at fair values, except for future income taxes. Goodwill is not recognized upon adoption of
fresh start reporting. Under fresh start reporting, retained earnings and contributed surplus were reset
to zero.
Expected impact to the opening balance sheet: Goodwill, which was reported by Air Canada prior
to the application of fresh start reporting under Canadian GAAP of $311 million, is expected to be
reinstated with an offsetting credit to Deficit. Adjustments to Deficit and Contributed surplus related
to the impact of fresh start reporting are expected to be undone with the offset to Share capital.
As outlined under IFRS 1 exemptions above, the majority of the Corporation’s intangible assets under
Canadian GAAP were carried in the balance sheet on the basis of valuations performed on September
30, 2004 following the application of fresh start reporting. In accordance with IFRS 1, the Corporation
is expected to elect to reverse the intangible assets that were established in accordance with Section
1625 of the CICA Handbook, Comprehensive Revaluation of Assets and Liabilities (“CICA 1625”). As
a result, Intangible assets are expected to decrease by $587 million, representing the derecognition
of existing Canadian GAAP intangible assets that were established in accordance with fresh start
reporting. The associated future income tax liability on the intangibles with indefinite lives is expected
to decrease $40 million, for a net charge to the Deficit of $547 million.
Impairment of Long-lived Assets Under IAS 36 Impairment of Assets (“IAS 36”), impairment testing of assets is based on comparing
the carrying amount of the asset or group of assets to their recoverable amount. Recoverable amount
is calculated as the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its
value in use. Value in use is calculated based upon a discounted cash flow analysis. In addition, IAS 36
requires, under certain circumstances, the reversal of impairment losses.
Policy choices: There are no policy choices available under IFRS.
Differences from existing Canadian GAAP: Under Canadian GAAP, recoverable amount is initially
based on undiscounted cash flows. If the recoverable amount is less than the carrying value then the
asset or asset group is written down to fair value. Impairment losses cannot be reversed under current
Canadian GAAP.
Expected impact to the opening balance sheet: The opening impairment test on transition to IFRS
has been completed. As at the date of the opening IFRS balance sheet, no impairment issues have been
identified.
Expected impact subsequent to transition: Impairments may be recognized more frequently under
IFRS, which may be reversed in future periods.