Air Canada 2014 Annual Report Download - page 101

101
2014 Consolidated Financial Statements and Notes 101 2014 Consolidated Financial Statements and Notes
The preparation of financial statements in conformity
with GAAP requires management to make estimates
and assumptions that affect the amounts reported in
these financial statements and accompanying notes.
These estimates and associated assumptions are
based on historical experience, future operating plans
and various other factors believed to be reasonable
under the circumstances, and the results of such
estimates form the basis of judgments about carrying
values of assets and liabilities. These underlying
assumptions are reviewed on an ongoing basis. Actual
results could differ materially from those estimates.
Significant estimates made in the preparation of
these financial statements include, but are not limited
to, the following areas, with further information
contained in the applicable accounting policy or note:
• Employee future benefits
The cost and related liabilities of the Corporation’s
pensions, other post-retirement and post-
employment benefit programs are determined
using actuarial valuations. The actuarial valuations
involve assumptions including discount rates,
future salary increases, mortality rates and future
benefit increases. Also, due to the long-term
nature of these programs, such estimates are
subject to significant uncertainty. Refer to Note 9
for additional information.
• Depreciation and amortization period
for long-lived assets
The Corporation makes estimates about the
expected useful lives of long-lived assets and the
expected residual values of the assets based on
the estimated current fair value of the assets,
the Corporation’s fleet plans and the cash flows
they generate. Changes to these estimates, which
can be significant, could be caused by a variety
of factors, including changes to maintenance
programs, changes in jet fuel prices and other
operating costs, changes in utilization of the
aircraft, and changing market prices for new
and used aircraft of the same or similar types.
Estimates and assumptions are evaluated at
least annually. Generally, these adjustments are
accounted for on a prospective basis, through
depreciation and amortization expense. For the
purposes of sensitivity analysis on these estimates,
a 50% reduction to residual values on aircraft
with remaining useful lives greater than five years
results in an increase of $32 to annual depreciation
expense. For aircraft with shorter remaining useful
lives, the residual values are not expected to
change significantly.
• Impairment considerations on long-lived assets
When required, an impairment test is performed
by comparing the carrying amount of the asset or
cash-generating unit to their recoverable amount,
which 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,
which requires management to make a number
of significant assumptions including assumptions
relating to future operating plans, discount rates
and future growth rates. Refer to Notes 5 and 6 for
additional information.
• Maintenance provisions
The recording of maintenance provisions related
to return conditions on aircraft leases requires
management to make estimates of the future
costs associated with the maintenance events
required under the lease return condition and
estimates of the expected future maintenance
condition of the aircraft at the time of lease
expiry. These estimates take into account current
costs of these maintenance events, estimates
of inflation surrounding these costs as well as
assumptions surrounding utilization of the related
aircraft. Any difference in the actual maintenance
cost incurred and the amount of the provision is
recorded in maintenance expense in the period.
The effect of any changes in estimates, including
changes in discount rates, inflation assumptions,
cost estimates or lease expiries, is also recognized
in maintenance expense in the period. Refer to
Note 10(a) for additional information.
• Income taxes
Deferred income tax assets are recognized only to
the extent that it is probable that future taxable
income will be available to realize them. In making
this assessment, consideration is given to available
positive and negative evidence and relevant
assumptions. Consideration is given to, among
other things, future projections of taxable income,
overall business environment, historical financial
results, and industry-wide trends and outlook. At
December 31, 2014, no deferred income tax assets
have been recorded.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS