Qantas 2010 Annual Report Download - page 58

THE QANTAS GROUP 56
for the year ended 30 June 2010
Notes to the Financial Statements continued
(P) PROPERTY, PLANT AND EQUIPMENT
Owned Assets
Items of property, plant and equipment are stated at cost or deemed
cost less accumulated depreciation and impairment losses. Items of
property, plant and equipment are initially recorded at cost, being the
fair value of the consideration provided plus incidental costs directly
attributable to the acquisition. The cost of acquired assets includes the
initial estimate at the time of installation and during the period of use,
when relevant, of the costs of dismantling and removing the items and
restoring the site on which they are located, and changes in the
measurement of existing liabilities recognised for these costs resulting
from changes in the timing or out ow of resources required to settle the
obligation or from changes in the discount rate. The unwinding of the
discount is treated as a  nance charge.
An element of the cost of an acquired aircraft is attributed to its service
potential re ecting the maintenance condition of its engines and
airframe. This cost is depreciated over the shorter of the period to the
next major inspection event or the remaining life of the asset.
The standard cost of subsequent major airframe and engine
maintenance checks is capitalised and depreciated over the shorter of
the scheduled usage period to the next major inspection event or the
remaining life of the aircraft. Manpower costs in relation to employees
who are dedicated to major modi cations to aircraft are capitalised as
part of the cost of the modi cation to which they relate.
Borrowing costs associated with the acquisition of qualifying assets, such
as aircraft and the acquisition, construction or production of signi cant
items of other property, plant and equipment, are capitalised as part of
the cost of the asset to which they relate.
Depreciation
Depreciation is provided on a straight-line basis on all items of property,
plant and equipment except for freehold land which is not depreciated.
The depreciation rates of owned assets are calculated so as to allocate
the cost or valuation of an asset, less any estimated residual value, over
the asset’s estimated useful life to the Qantas Group. Assets are
depreciated from the date of acquisition or, with respect to internally
constructed assets, from the time an asset is completed and available
for use. The costs of improvements to assets are depreciated over the
remaining useful life of the asset or the estimated useful life of the
improvement, whichever is the shorter. Assets under  nance lease are
depreciated over the term of the relevant lease or, where it is likely the
Qantas Group will obtain ownership of the asset, the life of the asset.
The principal asset depreciation periods and estimated residual value
percentages are:
Years
Residual
Value (%)
Buildings and leasehold improvements 10 – 40 0
Plant and equipment 3 – 20 0
Passenger aircraft and engines 2.5 – 20 0 – 10
Freighter aircraft and engines 2.5 – 20 0 – 20
Aircraft spare parts 15 – 20 0 – 20
Depreciation rates and residual values are reviewed annually and
reassessed having regard to commercial and technological developments,
the estimated useful life of assets to the Qantas Group and the
long-term  eet plan.
Leased and Hire Purchase Assets
Leased assets under which the Qantas Group assumes substantially
all the risks and bene ts of ownership are classi ed as  nance leases.
Other leases are classi ed as operating leases.
Linked transactions involving the legal form of a lease are accounted for
as one transaction when a series of transactions are negotiated as one
or take place concurrently or in sequence and cannot be understood
economically alone.
Finance leases are capitalised. A lease asset and a lease liability equal
to the present value of the minimum lease payments and guaranteed
residual value are recorded at the inception of the lease. Any gains and
losses arising under sale and leaseback arrangements are deferred and
depreciated over the lease term where the sale is not at fair value.
Capitalised leased assets are depreciated on a straight-line basis over the
period in which bene ts are expected to arise from the use of those
assets. Lease payments are allocated between the reduction in the
principal component of the lease liability and the interest element.
The interest element is charged to the Consolidated Income Statement
over the lease term so as to produce a constant periodic rate of interest
on the remaining balance of the lease liability.
Fully prepaid leases are classi ed in the Consolidated Balance Sheet as
hire purchase assets, to recognise that the  nancing structures impose
certain obligations, commitments and/or restrictions on the Qantas
Group, which differentiate these aircraft from owned assets.
Leases are deemed to be non-cancellable if signi cant  nancial penalties
associated with termination are anticipated.
Operating Leases
Rental payments under operating leases are charged to the Consolidated
Income Statement on a straight-line basis over the term of the lease.
With respect to any premises rented under long-term operating leases,
which are subject to sub-tenancy agreements, provision is made for any
shortfall between primary payments to the head lessor less any recoveries
from sub-tenants. These provisions are determined on a discounted cash
 ow basis, using a rate re ecting the cost of funds.
Manufacturers’ Credits
The Qantas Group receives credits from manufacturers in connection
with the acquisition of certain aircraft and engines. These credits are
recorded as a reduction to the cost of the related aircraft and engines.
Where the aircraft are held under operating leases, the credits are
deferred and reduced from the operating lease rentals on a straight-line
basis over the period of the related lease as deferred credits.
Capital Projects
Capital projects are disclosed within the categories to which they relate
and are stated at cost. When the asset is ready for its intended use, it is
capitalised and depreciated.
1. Statement of Signi cant Accounting Policies continued