Air Canada 2011 Annual Report Download - page 89

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2011 Consolidated Financial Statements and Notes
89
Buildings and leasehold improvements are depreciated on a straight-line basis over their useful lives not exceeding 50 years or
the term of any related lease, whichever is less. 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.
Residual values and useful lives are reviewed at least annually and depreciation rates are adjusted accordingly on a prospective
basis. Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the carrying
amount of the asset and are included as part of non-operating gains and losses in the consolidated statement of operations.
U) INTEREST CAPITALIZED
Borrowing costs are expensed as incurred, except for interest attributable to the acquisition, construction or production of an
asset that necessarily takes a substantial period of time to get ready for its intended use, in which case they are capitalized as
part of the cost of that asset. Capitalization of borrowing costs commences when expenditures for the asset and borrowing
costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are
capitalized up to the date when the project is completed and the related asset is available for its intended use.
To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing
costs eligible for capitalization is determined at the actual borrowing costs incurred on that borrowing during the period less
any investment income on the temporary investment of those borrowings. To the extent that funds are borrowed generally
and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization is
determined by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average
of the borrowing costs applicable to the borrowings of the Corporation that are outstanding during the period, other than
borrowings made specifically for the purpose of obtaining a qualifying asset.
V) LEASES
Leases are classified as finance leases when the lease arrangement transfers substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases. Gains and losses on sale and operating leaseback
transactions are recognized immediately in the statement of operations when it is clear that the transactions are established
at fair value. If the sale price is below fair value, any loss is recognized immediately except that, if the loss is compensated for
by future lease payments at below market price, it is deferred and amortized in proportion to the lease payments over the
period for which the asset is expected to be used. If the sale price is above fair value, the gain is deferred and amortized over
the period for which the asset is expected to be used. In the context of sale and finance leaseback transactions, any gain on
the sale is deferred and amortized over the lease term.
W) INTANGIBLE ASSETS
Intangible assets are initially recorded at cost. Indefinite life intangible assets are not amortized while assets with finite lives
are amortized on a straight line basis over their estimated useful lives.
Estimated
Useful
Life
Remaining
amortization
period as at
December 31, 2011
International route rights and slots Indefinite not applicable
Marketing based trade names Indefinite not applicable
Contract and customer based 10 years 3 years
Technology based (internally developed) 5 years 1 to 5 years
Development costs that are directly attributable to the design and testing of identifiable software products are recognized as
technology based intangible assets if certain criteria, including technical feasibility and intent and ability to develop and use
the technology to generate probable future economic benefits are met; otherwise they are expensed as incurred. Directly
attributable costs that are capitalized as part of the technology based intangible assets include software-related, employee
and third party development costs and an appropriate portion of relevant overhead.