Air Canada 2010 Annual Report Download - page 97

Download and view the complete annual report

Please find page 97 of the 2010 Air Canada annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

Consolidated Financial Statements and Notes
97
For financial 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 financial instrument. Interest expense is recorded using the
effective interest rate method. For any guarantee issued that meets the definition 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 financial
guarantee unless it qualifies as a derivative.
The Corporation has implemented the following classifications:
t $BTIBOEDBTIFRVJWBMFOUTBOE4IPSUUFSNJOWFTUNFOUTBSFDMBTTJGJFEBTIFMEGPSUSBEJOHBOEBOZQFSJPEDIBOHFJO
fair value is recorded through interest income.
t 3FTUSJDUFE DBTI JT DMBTTJGJFE BT IFMEGPSUSBEJOH BOE BOZ QFSJPE DIBOHF JO GBJS WBMVF JT SFDPSEFE UISPVHI JOUFSFTU
income.
t "JSDSBGUSFMBUFEBOEPUIFSEFQPTJUTBSFDMBTTJGJFEBTIFMEUPNBUVSJUZJOWFTUNFOUTBOEBSFNFBTVSFEBUBNPSUJ[FEDPTU
using the effective interest rate method. Interest income is recorded in the Consolidated Statement of Operations,
as applicable.
t "DDPVOUTSFDFJWBCMFBSFDMBTTJGJFEBTMPBOTBOESFDFJWBCMFTBOEBSFNFBTVSFEBUBNPSUJ[FEDPTUVTJOHUIFFGGFDUJWF
interest rate method. Interest income is recorded in the Consolidated Statement of Operations, as applicable.
t "DDPVOUTQBZBCMFDSFEJUGBDJMJUJFTBOE CBOLMPBOTBSFDMBTTJGJFEBTPUIFSGJOBODJBM MJBCJMJUJFTBOEBSFNFBTVSFEBU
amortized cost using the effective interest rate method. Interest expense is recorded in the Consolidated Statement
of Operations, as applicable.
Fuel Derivatives
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 flow hedges. In a cash flow 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). The effective gains and losses
previously recognized in Accumulated OCI (“AOCI”) are recorded in fuel expense when the forecasted hedge transaction
occurs.
Hedge accounting is discontinued prospectively when the derivative no longer qualifies 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 reclassified to fuel expense during the periods when the previously forecasted hedge transaction occurs. Refer to Note
15 for the impact of fuel derivatives during the year.
After considering the costs and benefits specific to the application of cash flow hedge accounting, the Corporation elected to
discontinue hedge accounting for all fuel derivatives effective the third quarter of 2009. The derivative instruments 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 were taken into fuel expense in the period in which the previously forecasted hedge transaction occurred. As at
December 31, 2010, there is no remaining balance in AOCI related to fuel hedging contracts.
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).