Qantas 2006 Annual Report Download - page 138

136
Notes to the Financial Statements
for the year ended 30 June 2006
(A) FREQUENT FLYER ACCOUNTING
The Qantas Group receives revenue from the sale to third parties of rights
to have Qantas award points allocated to members of the Qantas Frequent
Flyer program. Under previous GAAP, this revenue was recognised when
received. Under A-IFRS, this revenue is deferred and recognised when the
points are redeemed.
Members of the Qantas Frequent Flyer program also accumulate points by
travelling on qualifying Qantas and partner airline services. The obligation
to provide travel rewards to members arising from these points is provided
for as points are accumulated. The provision is based on the incremental
cost (being the cost of meals, fuel and passenger expenses) of providing the
travel rewards. The provision will be reduced as members redeem awards.
At the date of transition an amount of $955.7 million was recognised as
a liability with a consequential decrease in retained earnings of $669.0
million after a tax benefit of $286.7 million.
Applying A-IFRS to the Frequent Flyer program for the year ended 30 June
2005 results in a $142.2 million decrease in profit before related income
tax expense.
(B) DEFINED BENEFIT SUPERANNUATION PLANS
Under previous GAAP, defined benefit plans were accounted for on a cash
basis, with no defined benefit liability or asset recognised on the Balance
Sheet. Under A-IFRS, the Qantas Group’s net obligation with respect to
defined benefit superannuation plans is calculated separately for each plan
by estimating the amount of future benefit that employees have earned in
return for their service in current and prior periods. The benefit is
discounted to determine its present value and the fair value of any plan
assets is deducted.
Actuarial gains and losses that arise subsequent to transition date are
recognised to the Income Statement according to the “corridor” method as
provided by AASB 119 Employee Benefits. The “corridor” method recognises
movements in the funding position to the extent they exceed 10 per cent of
the greater of the plan’s assets or liabilities.
At the date of transition, an amount of $76.4 million has been recognised
as a liability with a consequential decrease in retained earnings of $53.5
million after a tax benefit of $22.9 million.
The calculation of the funding position under AASB 119 differs from the
method applied by the actuary, conducted in accordance with the terms
of the trust deed, to determine Qantas’ contribution to the plans. The most
recent actuarial valuations confirmed that the value of the Plans’ assets
were sufficient to meet all anticipated liabilities. No material change in
Qantas’ contribution to the plans are therefore anticipated.
Applying A-IFRS to superannuation for the year ended 30 June 2005 results
in a $25.0 million increase in profit before related income tax expense.
(C) LEASED ASSETS
Aircraft
Under both previous GAAP and A-IFRS, Qantas is required to consider the
economic substance of the leasing arrangement when determining the
appropriate accounting treatment. In both cases, it is the transfer (or lack
thereof) of substantially all the risks and benefits associated with the
leased asset that determines the accounting treatment for both the lessor
and lessee.
Where substantially all of the risks and benefits incidental to ownership of
the leased asset effectively remain with the lessor, the lease is an operating
lease. Where substantially all of these risks and benefits effectively pass to
the lessee, the lease is a finance lease.
Both previous GAAP and A-IFRS requires a lease to be classified as either
an operating lease or a finance lease at the inception of the lease. Once
determined, the lease classification cannot change without a change in the
actual terms of the lease. AASB 1008 Leases provided the following criteria
to assist lessees in determining when there has been an effective passing of
substantially all of the risks and benefits incidental to ownership. Such risk
transfer is presumed where both of the following criteria were satisfied:
a. the lease is a non-cancellable lease; and
b. where either of the following tests are satisfied:
• the lease term is for 75 per cent or more of the remaining economic life
of the leased asset; or
• the present value at the beginning of the lease term of the minimum lease
payments equals or exceeds 90 per cent of the fair value of the leased
asset at the inception of the lease.
Whilst AASB 117, the A-IFRS equivalent to AASB 1008 Leases, was stated to
be conforming to AASB 1008, this quantitative guidance to facilitate lease
classification is not incorporated within AASB 117.
A review of all aircraft operating leases, applying AASB 117 lease
classification criteria, has been completed. As a result of this review,
six aircraft previously classified as operating leases under previous GAAP
required reclassification as finance leases under A-IFRS.
At the date of transition, an increase in property, plant and equipment of
$338.5 million and an increase in lease liability of $403.9 million is
recognised. The consequential decrease in retained earnings of $45.8
million is recognised after a tax benefit of $19.6 million.
Applying A-IFRS to aircraft leases for the year ended 30 June 2005 results in
a $4.5 million decrease in profit before related income tax expense. This is
comprised of a decrease in the operating lease expense of $79.8 million
offset by an increase in depreciation of $43.4 million and interest expense
of $40.9 million.
36. Impact of Adopting A-IFRS continued