Air Canada 2011 Annual Report Download - page 87

2011 Consolidated Financial Statements and Notes
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 Accounts payable, credit facilities, and bank loans are classified as other financial liabilities and are measured at
amortized cost using the effective interest rate method. Interest expense is recorded in the Consolidated Statement of
Operations, as applicable.
 Investments in equity instruments are recorded as available-for-sale financial assets within Deposits and other assets;
available-for-sale financial assets are measured at fair value with gains or losses recorded in Other comprehensive income
(“OCI”).
Fuel Derivatives
After considering the costs and benefits specific to the application of cash flow hedge accounting, the Corporation no longer
applies hedge accounting for fuel derivatives. The derivative instruments are 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 Accumulated OCI (“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. Refer to Note 18 for the impact of fuel derivatives during the
period.
M) FOREIGN CURRENCY TRANSLATION
The functional currency of Air Canada and its subsidiaries is the Canadian dollar. 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).
N) INCOME TAXES
The tax expense for the period comprises current and deferred income tax. Tax is recognized in the Consolidated Statement of
Operations, except to the extent that it relates to items recognized in OCI or directly in equity, in which case the tax is netted
with such items.
The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance
sheet date in the jurisdictions where the Corporation and its subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject
to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are
not recognized if they arise from the initial recognition of goodwill; and deferred income tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws
that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilized.
O) EARNINGS PER SHARE
Basic earnings per share (“EPS”) is calculated by dividing the net income (loss) for the period attributable to the shareholders
of Air Canada by the weighted average number of ordinary shares outstanding during the period. Shares held in trust for
employee share-based compensation awards are treated as treasury shares and excluded from basic shares outstanding in the
calculation of basic EPS.
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding for dilutive potential
ordinary shares. The Corporation’s potentially dilutive ordinary shares comprise stock options, equity-settled performance
share units granted to employees, warrants, and any shares held in trust for employee share-based compensation awards. The