Singapore Airlines 2011 Annual Report Download - page 120

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SINGAPORE AIRLINES
118
NOTES TO THE FINANCIAL STATEMENTS
31 March 2011
3 Significant Accounting Estimates
Estimates and assumptions concerning the future are made in the preparation of the financial statements.
They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income
and expenses, and disclosures made. They are assessed on an ongoing basis and are based on experience
and relevant factors, including expectations of future events that are believed to be reasonable under
the circumstances.
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of
the reporting period that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below.
(a) Impairment of property, plant and equipment – aircraft fleet
Impairment is recognised when events and circumstances indicate that the aircraft may be impaired
and the carrying amounts of the aircraft exceed the recoverable amounts. Recoverable amount is
defined as the higher of an aircraft’s fair value less costs to sell and its value-in-use. The fair value
less costs to sell computation is based on available data from binding sales transactions in an arm’s
length transaction of similar assets or observable market prices less incremental costs for disposing the
asset. In determining the recoverable amounts of the aircraft, certain estimates regarding the current
fair market value of the aircraft are made. The current fair market value is determined based on
desktop valuations from an independent appraisal for fleet with similar operational lives. When value-
in-use calculations are undertaken, the Group uses discounted cash flow projections based on financial
budgets approved by the management covering a specified period.
(b) Depreciation of property, plant and equipment – aircraft fleet
Aircraft are depreciated on a straight-line basis at rates which are calculated to write-down their cost
to their estimated residual values at the end of their operational lives. Certain estimates regarding
the operational lives and residual values of the fleet are made by the Group based on past
experience and these are in line with the industry. The operational lives and residual values are
reviewed on an annual basis. The carrying amount of the Group’s and the Company’s aircraft fleet
at 31 March 2011 was $11,111.9 million (2010: $12,474.9 million) and $9,137.5 million (2010:
$10,347.5 million) respectively.
During the year, the Group reduced the estimated useful lives and residual values for certain
aircraft pursuant to the sale of these aircraft. Consequently, an additional depreciation expense of
$80.0 million was charged to the profit and loss account during the year.
(c) Passenger revenue recognition
Passenger sales are recognised as operating revenue when the transportation is provided. The value
of unused tickets is included as sales in advance of carriage on the statement of financial position
and recognised as revenue at the end of two years. This is estimated based on historical trends
and experiences of the Group whereby ticket uplift occurs mainly within the first two years. The
carrying amount of the Group’s and the Company’s sales in advance of carriage at 31 March 2011 was
$1,459.8 million (2010: $1,338.0 million) and $1,421.1 million (2010: $1,301.9 million) respectively.
(d) Frequent Flyer programme
The Company operates a frequent flyer programme called “KrisFlyer” that provides travel awards to
programme members based on accumulated mileage. A portion of passenger revenue attributable to
the award of frequent flyer benefits is deferred until they are utilised. The deferment of the revenue
is estimated based on historical trends of breakage and redemption, which is then used to project the
expected utilisation of these benefits. Any remaining unutilised benefits are recognised as revenue
upon expiry. The carrying amount of the Group’s and the Company’s deferred revenue at 31 March
2011 was $445.1 million (2010: $460.1 million).