Air Canada 2014 Annual Report Download - page 98

98 2014 Annual Report
construction or production of an asset that necessarily
takes a substantial period of time to get ready for its
intended use, the costs 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 consolidated 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.
Total aircraft operating lease rentals over the lease
term are amortized to operating expense (aircraft
rent) on a straight-line basis. Included in Deposits
and other assets and Other long-term liabilities are
the differences between the straight-line aircraft rent
expense and the payments as stipulated under the
lease agreement.
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,
2014
International route
rights and slots Indefinite not applicable
Marketing based trade
names Indefinite not applicable
Contract and customer
based 10 years nil
Technology based
(internally developed) 5 years 1 to 5 years
Air Canada has international route and slot rights
which enable the Corporation to provide services
internationally. The value of the recorded intangible
assets relates to the cost of route and slot rights at
Tokyo’s Narita International Airport, Washington’s
Reagan National Airport and London’s Heathrow
Airport. Air Canada expects to provide service to
these international locations for an indefinite period.
Air Canada and certain of its subsidiaries have trade
names, trademarks and domain names (collectively,
“Trade Names”). These items are marketing based
intangible assets as they are primarily used in the
selling and promotion of Air Canada’s products and
services. The Trade Names create brand recognition
with customers and potential customers and are
capable of contributing to cash flows for an indefinite
period of time. Air Canada intends to continuously
reinvest and market the Trade Names to support
classification as indefinite life intangibles. If there
were plans to cease using any of the Trade Names,
the specific names would be classified as finite and
amortized over the expected remaining useful life.
Development costs that are directly attributable to
the design, development and testing of identifiable
software products are recognized as technology based
intangible assets if certain criteria are met, including
technical feasibility and intent and ability to develop
and use the technology to generate probable future
economic benefits; 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.