Westjet 2006 Annual Report Download - page 44

42 2006 | WestJet Annual Report
1. Signifi cant accounting policies (continued):
(j) Capitalized costs (continued):
intended use, at which time, they are amortized over fi ve to 10 years. Interest attributable to funds used to
fi nance property and equipment is capitalized to the related asset. Legal and fi nancing costs for the loan
facilities are capitalized to other assets on the balance sheet and amortized on a straight-line basis over
the term of the related loan.
Costs of new route development are expensed as incurred.
(k) Future income tax:
The Corporation uses the liability method of accounting for future income taxes. Under this method, current
income taxes are recognized for the estimated income taxes payable for the current year. Future income
tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of
assets and liabilities, calculated using the currently enacted or substantively enacted tax rates anticipated
to apply in the period that the temporary differences are expected to reverse.
(l) Stock-based compensation plans:
The Corporation uses the fair value method for valuing stock options. Under this method, as new options are
granted, the fair value of these options will be expensed on a straight-line basis over the applicable vesting
period, with an offsetting entry to contributed surplus. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option pricing model. Upon the exercise of stock options,
consideration received together with amounts previously recorded in contributed surplus is recorded as an
increase in share capital.
(m) Financial instruments:
Derivative fi nancial instruments are utilized by the Corporation from time to time in the management of its
foreign currency, interest rate and fuel price exposures. The Corporation’s policy is not to utilize derivative
fi nancial instruments for trading or speculative purposes.
The Corporation formally documents all relationships between hedging instruments and hedged items,
as well as its risk management objective and strategy for undertaking various hedge transactions. This
process includes linking all derivatives to specifi c assets and liabilities on the balance sheet or to specifi c
fi rm commitments or anticipated transactions. The Corporation also formally assesses, both at the hedge’s
inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash fl ows of hedged items. In the event that a derivative
fi nancial instrument is not designated for hedge accounting, does not qualify for hedge accounting or the
event that the hedge is ineffective, changes in the fair value of derivative fi nancial instruments are recorded
in non-operating income or expense.
Gains or losses relating to derivatives that are designated as hedges are deferred in other assets and/or
other liabilities and recognized in the same period and in the same fi nancial category as the corresponding
hedged transactions.
(n) Per share amounts:
Basic per share amounts are calculated using the weighted average number of shares outstanding during the
year. Diluted per share amounts are calculated based on the treasury stock method, which assumes that the
total proceeds obtained on the exercise of options and the unamortized portion of stock based compensation
would be used to purchase shares at the average price during the period. The weighted average number of
shares outstanding is then adjusted by the net change.
(o) Comparative fi gures:
Certain prior-period balances have been reclassifi ed to conform to current period’s presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WestJet Airlines Ltd.
Years ended December 31, 2006 and 2005
(Tabular Amounts are Stated in Thousands of Dollars, Except Share and Per Share Data)