Ryanair 2016 Annual Report Download - page 151

151
which are based on fair value determined as at the grant date of the relevant share options. Certain non-current assets, when
they are classified as held for sale, are stated at the lower of cost and fair value less costs to sell.
Critical accounting policies
The preparation of financial statements in conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and
expenses. These estimates and associated assumptions are based on historical experience and various other factors believed
to be reasonable under the circumstances, and the results of such estimates form the basis of judgements about carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from
these estimates. These underlying assumptions are reviewed on an ongoing basis. A revision to an accounting estimate is
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if these are also affected. Principal sources of estimation uncertainty have been set forth in the
critical accounting policies section below. Actual results may differ from estimates.
The Company believes that its critical accounting policies, which are those that require management’s most
difficult, subjective and complex judgements, are those described in this section. These critical accounting policies, the
judgements 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.
Long-lived assets
As of March 31, 2016, Ryanair had €6.3 billion of property, plant and equipment long-lived assets, virtually all
of which consisted of 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 data
available in the marketplace. Subsequent revisions to these estimates, which can be significant, could be caused by changes
to Ryanair’s maintenance program, changes in utilisation of the aircraft, changes to governmental regulations on aging
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.
The Company’s estimate of the recoverable amount of aircraft residual values is 15% of current market value of
new aircraft, determined periodically, based on independent valuations and actual aircraft disposals during prior periods.
Aircraft are depreciated over a useful life of 23 years from the date of manufacture to residual value.
Heavy maintenance
An element of the cost of an acquired aircraft is attributed, on acquisition, to its service potential, reflecting the
maintenance condition of the engines and airframe.
For aircraft held under operating lease agreements, Ryanair is contractually committed to either return the aircraft
in a certain condition or to compensate the lessor based on the actual condition of the airframe, engines and life-limited
parts upon return. In order to fulfill such conditions of the lease, maintenance, in the form of major airframe overhaul,