Ryanair 2009 Annual Report Download - page 76

76
CRITICAL ACCOUNTING POLICIES
The following discussion and analysis of Ryanair’s financial condition and results of operations is
based on its consolidated financial statements, which are included in Item 18 and prepared in accordance with
IFRS.
The preparation of the Company’s financial statements requires the use of estimates, judgments, and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented. Actual results may differ from
these estimates.
The Company believes that its critical accounting policies, which are those that require management’s
most difficult, subjective and complex judgments, are those described in this section. These critical accounting
policies, the judgments and other uncertainties affecting application of these policies and the sensitivity of
reported results to changes in conditions and assumptions are factors to be considered in reviewing the
consolidated financial statements included in Item 18 and the discussion and analysis below. For additional
detail on these policies, see Note 1, “Basis of preparation and significant accounting policies,” to the
consolidated financial statements included in Item 18.
Available-for-Sale Securities
The Company holds certain equity securities, which are classified as available-for-sale, and are
measured at fair value, less incremental direct costs, on initial recognition. Such securities are classified as
available for sale, rather than as an investment in an associate because the Company does not have the power to
exercise significant influence over the investee. Subsequent to initial recognition they are measured at fair value
and changes therein, other than impairment losses, are recognized directly in equity. The fair values of
available-for-sale securities are determined by reference to quoted prices at each reporting date. When an
investment is de-recognized the cumulative gain or loss in equity is transferred to the income statement.
Such securities are considered to be impaired if there is objective evidence which indicates that there
may be a negative influence on future cash flows. This includes where there is a significant or prolonged decline
in the fair value below its cost. All impairment losses are recognized in the income statement and any
cumulative loss in respect of an available-for-sale asset recognized previously in equity is transferred to the
income statement.
Long-lived Assets
As of March 31, 2009, Ryanair had €3.6 billion of long-lived assets, virtually all of which were
aircraft. In accounting for long-lived assets, Ryanair must make estimates about the expected useful lives of the
assets, the expected residual values of the assets, and the potential for impairment based on the fair value of the
assets and the cash flows they generate.
In estimating the lives and expected residual values of its aircraft, Ryanair has primarily relied on its
own and industry experience, recommendations from Boeing, the manufacturer of all of the Company’s aircraft,
and other available marketplace information. Subsequent revisions to these estimates, which can be significant,
could be caused by changes to Ryanair’s maintenance program, changes in utilization of the aircraft,
governmental regulations on aging of aircraft and changing market prices for new and used aircraft of the same
or similar types. Ryanair evaluates its estimates and assumptions in each reporting period, and, when warranted,
adjusts these assumptions. Generally, these adjustments are accounted for on a prospective basis, through
depreciation expense.
Ryanair periodically evaluates its long-lived assets for impairment. Factors that would indicate
potential impairment would include, but are not limited to, significant decreases in the market value of an
aircraft, a significant change in an aircraft’s physical condition and operating or cash flow losses associated with
the use of the aircraft. While the airline industry as a whole has experienced many of these factors from time to
time, Ryanair has not yet been seriously impacted and continues to record positive cash flows from these long-
lived assets. Consequently, Ryanair has not yet identified any impairments related to its existing aircraft fleet.
The Company will continue to monitor its long-lived assets and the general airline operating environment.