Ryanair 2016 Annual Report Download - page 94

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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,
engine maintenance checks, and restitution of major life-limited parts, is required to be performed during the period of the
lease and upon return of the aircraft to the lessor. The estimated airframe and engine maintenance costs and the costs
associated with the restitution of major life-limited parts, are accrued and charged to profit or loss over the lease term for
this contractual obligation, based on the present value of the estimated future cost of the major airframe overhaul, engine
maintenance checks and restitution of major life-limited parts, calculated by reference to the number of hours flown or
cycles operated during the year.
Ryanair’s aircraft operating lease agreements typically have a term of seven years, which closely correlates with
the timing of heavy maintenance checks. The contractual obligation to maintain and replenish aircraft held under operating
lease exists independently of any future actions within the control of Ryanair. While Ryanair may, in very limited
circumstances, sub-lease its aircraft, it remains fully liable to perform all of its contractual obligations under the ‘head
lease’ notwithstanding any such sub-leasing.
Both of these elements of accounting policies involve the use of estimates in determining the quantum of both the
initial maintenance asset and/or the amount of provisions to be recorded and the respective periods over which such
amounts are charged to income. In making such estimates, Ryanair has primarily relied on its own and industry experience,
industry regulations and recommendations from Boeing; however, these estimates can be subject to revision, depending
on a number of factors, such as the timing of the planned maintenance, the ultimate utilization of the aircraft, changes to
government regulations and increases or decreases in estimated costs. Ryanair evaluates its estimates and assumptions in
each reporting period and, when warranted, adjusts its assumptions, which generally impact maintenance and depreciation
expense in the income statement on a prospective basis.
Tax Audits
Income tax on the profit or loss for the year comprises current and deferred tax. Current tax payable on taxable
profits is recognized as an expense in the period in which the profits arise using tax rates enacted or substantively enacted
at the balance sheet date. Deferred tax is provided in full, using the balance sheet liability method on temporary differences
arising from the tax basis of assets and liabilities and their carrying amount in the consolidated financial statements.
Social insurance, passenger taxes and sales taxes are recorded as a liability based on laws enacted in the
jurisdictions to which they relate. Liabilities are recorded when an obligation has been incurred.
Ryanair reviews its tax obligations by jurisdiction regularly. There are many complexities and judgments in
determining tax obligations due to the inherent complexity of tax law, the manner in which airline businesses are carried
out whereby operations can begin and end in different jurisdictions and assumptions made about the timing and amount of
individual balances to be included in financial statements and tax returns.
Ryanair has an internal tax group and takes professional advice on more complex matters in estimating its tax
liabilities. Ryanair also deals extensively with revenue authorities in each jurisdiction in which it operates. Tax liabilities
are based on the best estimate of the likely obligation at each reporting period. These estimates are subject to revision
based on the outcome of tax audits and discussions with revenue authorities that can take several years to conclude.