Air Canada 2014 Annual Report Download - page 97

97
2014 Consolidated Financial Statements and Notes
respect to performance-based employee share
options is treated as contingently issuable shares
because their issue is contingent upon satisfying
specified conditions in addition to the passage of
time. If the specified conditions are met, then the
number of shares included is also computed using the
treasury stock method unless they are anti-dilutive.
P. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include $234 pertaining
to investments with original maturities of three
months or less at December 31, 2014 ($186 as at
December 31, 2013).
Q. SHORT-TERM INVESTMENTS
Short-term investments have original maturities over
three months, but not more than one year.
R. RESTRICTED CASH
The Corporation has recorded Restricted cash
under Current assets representing funds held in
trust by Air Canada Vacations in accordance with
regulatory requirements governing advance ticket
sales, as well as funds held in escrow accounts
relating to Air Canada Vacations credit card booking
transactions, recorded under Current liabilities, for
certain travel related activities.
Restricted cash with maturities greater than one year
from the balance sheet date is recorded in Deposits
and other assets. This restricted cash relates to funds
on deposit with various financial institutions as
collateral for letters of credit and other items.
S. AIRCRAFT FUEL INVENTORY AND
SPARE PARTS AND SUPPLIES INVENTORY
Inventories of aircraft fuel and spare parts, other than
rotables, and supplies are measured at cost being
determined using a weighted average formula, net of
related obsolescence provision, as applicable.
The Corporation did not recognize any write-downs
on inventories or reversals of any previous write-
downs during the periods presented. Included in
Aircraft maintenance is $55 related to spare parts and
supplies consumed during the year (2013 – $48).
T. PROPERTY AND EQUIPMENT
Property and equipment is recognized using the cost
model. Property under finance leases and the related
obligation for future lease payments are initially
recorded at an amount equal to the lesser of fair value
of the property or equipment and the present value of
those lease payments.
The Corporation allocates the amount initially
recognized in respect of an item of property and
equipment to its significant components and
depreciates separately each component. Property
and equipment are depreciated to estimated residual
values based on the straight-line method over their
estimated service lives. Aircraft and flight equipment
are componentized into airframe, engine, and cabin
interior equipment and modifications. Airframes and
engines are depreciated over 20 to 25 years, with
10% to 20% estimated residual values. Spare engines
and related parts (“rotables”) are depreciated over
the average remaining useful life of the fleet to which
they relate with 10% to 20% estimated residual
values. Cabin interior equipment and modifications
to aircraft on operating leases are amortized over the
term of the lease. Major maintenance of airframes
and engines, including replacement spares and parts,
labour costs and/or third party maintenance service
costs, are capitalized and amortized over the average
expected life between major maintenance events.
Major maintenance events typically consist of more
complex inspections and servicing of the aircraft. All
maintenance of fleet assets provided under power-by-
the-hour contracts are charged to operating expenses
in the income statement as incurred. Buildings 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 five
years. Ground and other equipment is depreciated over
three to 25 years.
Previously, cabin interior equipment and modifications
were depreciated over the lesser of five years or
the remaining useful life of the aircraft. Effective
April 1, 2014, cabin interior equipment and
modifications are depreciated over the lesser of
eight years or the remaining useful life of the aircraft.
The adjustment to their useful lives was made
prospectively as a change in accounting estimate and
reflects product developments, and is in line with
fleet plans. The impact of this change in accounting
estimate is a decrease of $6 in depreciation expense
for the year ended December 31, 2014.
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. For
borrowing costs attributable to the acquisition,