Air Canada 2014 Annual Report Download - page 95

95
2014 Consolidated Financial Statements and Notes
contributions. These contributions are expensed in
Wages, salaries, and benefits expense over the vesting
period.
J. MAINTENANCE AND REPAIRS
Maintenance and repair costs for both leased and
owned aircraft are charged to Aircraft maintenance
as incurred, with the exception of maintenance
and repair costs related to return conditions on
aircraft under operating lease, which are accrued
over the term of the lease, and major maintenance
expenditures on owned and finance leased aircraft,
which are capitalized as described below in Note 2T.
Maintenance and repair costs related to return
conditions on aircraft leases are recorded over the
term of the lease for the end of lease maintenance
return condition obligations within the Corporation’s
operating leases, offset by a prepaid maintenance
asset to the extent of any related power-by-the-hour
maintenance service agreements or any recoveries
under aircraft subleasing arrangements. The provision
is recorded within Maintenance provisions using a
discount rate taking into account the specific risks
of the liability over the remaining term of the lease.
Interest accretion on the provision is recorded in
Other non-operating expense. For aircraft under
operating leases which are subleased to third parties,
the expense relating to the provision is presented net
on the income statement of the amount recognized
for any reimbursement of maintenance cost which
is the contractual obligation of the sublessee. The
reimbursement is recognized when it is virtually
certain that the reimbursement will be received when
the Corporation settles the obligation. Any changes in
the maintenance cost estimate, discount rates, timing
of settlement or difference in the actual maintenance
cost incurred and the amount of the provision are
recorded in Aircraft maintenance.
K. OTHER OPERATING EXPENSES
Included in Other operating expenses are expenses
related to building rent and maintenance, airport
terminal handling costs, professional fees and services,
crew meals and hotels, advertising and promotion,
insurance costs, and other expenses. Other operating
expenses are recognized as incurred.
L. FINANCIAL INSTRUMENTS
Under the Corporation’s risk management policy,
derivative financial instruments are used only for risk
management purposes and not for generating trading
profits.
Financial assets and financial liabilities, including
derivatives, are recognized on the consolidated
statement of financial position when the Corporation
becomes a party to the contractual provisions of
the financial instrument or derivative contract. All
financial instruments are required to be measured at
fair value on initial recognition. The Corporation’s own
credit risk and the credit risk of the counterparty are
taken into consideration in determining the fair value
of financial assets and financial liabilities, including
derivative instruments. Measurement in subsequent
periods is dependent upon the classification of the
financial instrument. The Corporation classifies its
financial assets as either fair value through profit
or loss (“FVTPL”), loans and receivables or, held to
maturity. The classification depends on the purpose
for which the financial assets were acquired.
Management determines the classification of its
financial assets at initial recognition. Financial assets
at FVTPL are financial assets held for trading. A
financial asset is classified in this category if acquired
principally for the purpose of selling in the short-
term. Derivatives are also categorized as held for
trading unless they are designated as hedges. Loans
and receivables are non-derivative financial assets
with fixed or determinable payments that are not
quoted in an active market. For financial instruments
classified as other than held-for-trading, transaction
costs are added to the initial fair value of the related
financial instrument. Financial assets and financial
liabilities classified as held-for-trading are measured
at FVTPL. Loans and receivables, or other financial
liabilities are measured at amortized cost using the
effective interest rate method.
The Corporation assesses at the end of each reporting
period whether there is objective evidence that a
financial asset or a group of financial assets is impaired.
For loans and receivables, the amount of the loss
is measured as the difference between the asset’s
carrying value and the present value of estimated
future cash flows. The carrying amount of the asset
is reduced by the amount of the loss and the latter is
recognized in the consolidated statement of operations.
The Corporation enters into interest rate, foreign
currency, fuel derivatives and share forward
contracts to manage the associated risks. Derivative
instruments are recorded on the consolidated
statement of financial position at fair value, including
those derivatives that are embedded in financial
or non-financial contracts that are required to
be accounted for separately. Changes in the fair
value of derivative instruments are recognized in
Non-operating income (expense). These derivative
contracts are included in the consolidated statement
of financial position at fair value in Prepaid expenses
and other current assets, Deposits and other assets,
Accounts payable and accrued liabilities, or Other
long-term liabilities based on the terms of the