Air Canada 2010 Annual Report Download - page 99

Consolidated Financial Statements and Notes
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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 and within variable interest entities are depreciated to
estimated residual values over the life of the lease. 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 3 to 5 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 5 years. Ground and
other equipment is depreciated over 3 to 25 years.
T) INTEREST CAPITALIZED
Interest on funds used to finance the acquisition of new flight equipment and other property and equipment is capitalized
for periods preceding the dates that the assets are available for service. Capitalized interest related to the acquisition of
new flight equipment and other property and equipment is included in purchase deposits within Property and equipment
(Note 3) based on the effective interest rate. Capitalized interest also includes financing costs charged by the manufacturer
on capital commitments as described in Note 14.
U) INTANGIBLE ASSETS
As a result of the application of fresh start reporting, intangible assets were recorded at their estimated fair values at
September 30, 2004. For periods subsequent to September 30, 2004, intangible assets are initially recorded at cost. Indefinite
life assets are not amortized while assets with finite lives are amortized on a straight line basis to nil over their estimated
useful lives.
Estimated
Useful Life
International route rights and slots Indefinite
Air Canada trade name Indefinite
Other marketing based trade names Indefinite
Star Alliance membership 25 years
Other contract and customer based intangible assets 10 to 15 years
Technology based intangible assets 5 years
V) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are tested for impairment whenever circumstances indicate that the carrying value may not be
recoverable. When events or circumstances indicate that the carrying amount of long-lived assets, other than indefinite
life intangibles, are not recoverable, the long-lived assets are tested for impairment by comparing the estimate of future
expected undiscounted cash flows to the carrying amount of the assets or groups of assets. If the carrying value is not
recoverable from future expected undiscounted cash flows, any loss is measured as the amount by which the asset’s
carrying value exceeds fair value and recorded in the period. Recoverability is assessed relative to undiscounted cash flows
from the direct use and disposition of the asset or group of assets.
Indefinite life intangible assets are subjected to impairment tests on an annual basis or when events or circumstances
indicate a potential impairment. If the carrying value of such assets exceeds the fair values, the assets are written down to
fair value.
W) AIRCRAFT LEASE PAYMENTS IN EXCESS OF OR LESS THAN RENT EXPENSE
Total aircraft operating lease rentals over the lease term are amortized to operating expense on a straight-line basis.
Included in Deposits and other assets and Other long-term liabilities are the differences between the straight line aircraft
rent expense and the payments as stipulated under the lease agreement.