Westjet 2006 Annual Report Download - page 42

40 2006 | WestJet Annual Report
1. Signifi cant accounting policies:
(a) Basis of presentation:
These consolidated fi nancial statements include the accounts of WestJet Airlines Ltd. (the “Corporation”)
and its wholly owned subsidiaries, as well as the accounts of four special-purpose entities, which are
utilized to facilitate the fi nancing of aircraft. The Corporation has no equity ownership in the special-purpose
entities; however, the Corporation is the primary benefi ciary of the special-purpose entities’ operations. All
intercompany balances and transactions have been eliminated.
The preparation of fi nancial statements in conformity with accounting principles generally accepted in
Canada requires management to make estimates and assumptions, regarding signifi cant items such as
amounts relating to depreciation and amortization, non-refundable guest credits, lease return conditions,
future income taxes, stock-based compensation expense, deferred sales and marketing costs, impairment
assessments of property and equipment, and the valuation of derivative fi nancial instruments that affect
the amounts reported in the fi nancial statements and accompanying notes. Actual results could differ from
these estimates.
(b) Cash and cash equivalents:
Cash and cash equivalents are comprised of cash and all investments that are highly liquid in nature and
have a maturity date of three months or less.
(c) Revenue recognition:
Guest and charter revenue is recognized when air transportation is provided. Tickets sold but not yet used
are reported in the consolidated balance sheet as advance ticket sales.
The Corporation earns revenue from package holiday sales. Revenue from the air content is recognized when
air transportation is provided. Revenue from the land content is deferred and recognized on completion of
the holiday. Revenue from the land content is generated from providing agency services equal to the amount
paid by the guest for products and services less payment to the travel supplier and are reported at the net
amounts received, without any associated cost of revenue.
Cargo revenue is recognized when air transportation services are performed under the cargo agreement.
The Corporation earns revenue under the tri-branded credit card agreement which is included in other
revenue. Net retail sales revenue is recognized at the time the transaction occurs. Revenue related to
account activations is deferred and recognized when the Corporation fulfi lls its obligations related to the
new activations.
(d) Non-refundable guest credits:
Where appropriate, the Corporation issues future travel credits related to guests for fl ight delays, missing
baggage and other inconveniences as a gesture of good faith. These credits are non-refundable and expire
one year from the date of issue. The Corporation records a liability based on the estimated incremental cost
of a one-way fl ight in the period the credit is issued. The utilization of guest credits is recorded as revenue
when the guest has fl own or upon expiry.
(e) Foreign currency:
Monetary assets and liabilities, denominated in foreign currencies, are translated into Canadian dollars at
rates of exchange in effect at the balance sheet date. Non-monetary assets and revenue and expense items
are translated at rates prevailing when they were acquired or incurred. Foreign exchange gains and losses
are included in earnings.
WestJet Airlines Ltd.
Years ended December 31, 2006 and 2005
(Tabular Amounts are Stated in Thousands of Dollars, Except Share and Per Share Data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS