Westjet 2007 Annual Report Download - page 48

PAGE 46 WESTJET ANNUAL REPORT 2007
WestJet Airlines Ltd.
Years ended December 31, 2007 and 2006
(Tabular amounts are stated in thousands of dollars, except share and per share data)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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 fi ve 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.
Amounts presented in the Corporation’s consolidated fi nancial statements and the notes thereto are in Canadian dollars unless
otherwise stated.
(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 sheets 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 provided.
Other revenue includes ancillary revenue from fees associated with guest itinerary changes, excess baggage fees, buy-on-board food sales
and headset sales. Ancillary revenues are recognized as the services and products are provided to the guests.
The Corporation earns revenue under the tri-branded credit card agreement, which is also included in other revenue. Net retail sales revenue
is recognized at the time the transaction occurs. Revenue related to account activations is recognized immediately upon activation.
(d) Non-refundable guest credits:
The Corporation issues future travel credits to guests for fl ight changes and cancellations, as well as for gift certifi cates. Where appropriate,
future travel credits are also issued for fl ight delays, missing baggage and other inconveniences. All credits are non-refundable and expire
based on the nature of the credit. The Corporation records a liability depending on the nature of the credit at either the full value or at the
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.
(f) Inventory:
Fuel and supplies are valued at the lower of cost, determined on a fi rst-in-fi rst-out basis, and replacement value. Aircraft expendables and
consumables are expensed as acquired.
(g) Deferred costs:
Sales and marketing expenses attributed to advance ticket sales are deferred and expensed in the period the related revenue is recognized.
(h) Property and equipment:
Property and equipment are recorded at cost and depreciated to their estimated residual values. Assets under capital lease are initially
recorded at the present value of minimum lease payments at the inception of the lease.