Alaska Airlines and Horizon Air 2013 Annual Report Download - page 147

allowance for doubtful accounts based on known
troubled accounts and historical experience
applied to an aging of accounts.
Inventories and Supplies—net
Expendable aircraft parts, materials and supplies
are stated at average cost and are included in
inventories and supplies—net. An obsolescence
allowance for expendable parts is accrued based
on estimated lives of the corresponding fleet
type and salvage values. The allowance for all
non-surplus expendable inventories was
$30 million and $26 million at December 31,
2013 and 2012, respectively. Inventory and
supplies—net also includes fuel inventory of
$23 million and $23 million at December 31,
2013 and 2012, respectively. Repairable and
rotable aircraft parts inventories are included in
flight equipment.
Property, Equipment and Depreciation
Property and equipment are recorded at cost and depreciated using the straight-line method over their
estimated useful lives, which are as follows:
Aircraft and related flight equipment:
Boeing 737 aircraft ......................................... 20years
Bombardier Q400 .......................................... 15years
Buildings ................................................. 25-30 years
Minor building and land improvements ............................. 10years
Capitalized leases and leasehold improvements ...................... Shorter of lease term or
estimated useful life
Computer hardware and software ................................. 3-5years
Other furniture and equipment .................................... 5-10 years
“Related flight equipment” includes rotable and
repairable spare inventories, which are
depreciated over the associated fleet life unless
otherwise noted.
Interest is capitalized on flight equipment
purchase deposits as a cost of the related
asset, and is depreciated over the estimated
useful life of the asset. The capitalized interest
is based on the Company’s weighted-average
borrowing rate.
Maintenance and repairs, other than engine
maintenance on some B737-700 and -900
engines, are expensed when incurred. Major
modifications that extend the life or improve the
usefulness of aircraft are capitalized and
depreciated over their estimated period of use.
Maintenance on some B737-700 and -900
engines is covered under power-by-the-hour
agreements with third parties, whereby the
Company pays a determinable amount, and
transfers risk, to a third party. The Company
expenses the contract amounts based on engine
usage.
The Company evaluates long-lived assets to be
held and used for impairment whenever events
or changes in circumstances indicate that the
total carrying amount of an asset or asset group
may not be recoverable. The Company groups
assets for purposes of such reviews at the
lowest level for which identifiable cash flows of
the asset group are largely independent of the
cash flows of other groups of assets and
liabilities. An impairment loss is considered
when estimated future undiscounted cash flows
expected to result from the use of the asset or
asset group and its eventual disposition are less
than its carrying amount. If the asset or asset
group is not considered recoverable, a write-
down equal to the excess of the carrying amount
over the fair value will be recorded.
Internally Used Software Costs
The Company capitalizes costs to develop
internal-use software that are incurred in the
application development stage. Amortization
commences when the software is ready for its
intended use and the amortization period is the
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