Westjet 2013 Annual Report Download - page 73

WestJet Annual Report 2013 73
Notes to Consolidated Financial Statements
As at and for the years ended December 31, 2013 and 2012
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
1. Statement of significant accounting policies (continued)
(i) Inventory
Inventories are valued at the lower of cost and net realizable value, with cost being determined on a first-in, first-out basis and a
specific item basis depending on the nature of the inventory. The Corporation’s inventory balance consists of aircraft fuel, de-
icing fluid, retail merchandise and aircraft expendables.
(j) Property and equipment
Property and equipment is stated at cost and depreciated to its estimated residual value. Expected useful lives and depreciation
methods are reviewed annually.
Asset class
Basis
Rate
Aircraft, net of estimated residual value
Straight-line
15 to 20 years
Engine, airframe and landing gear overhaul Straight-line 5 to 15 years
Live satellite television equipment Straight-line 10 years/Term of lease
Ground property and equipment
Straight-line
3 to 25 years
Spare engines and rotables, net of estimated residual value Straight-line 15 to 20 years
Buildings Straight-line 40 years
Leasehold improvements
Straight-line
5 years/Term of lease
Estimated residual values of the Corporation’s aircraft range between $2,500 and $6,000 per aircraft. Spare engines have an
estimated residual value equal to 10% of the original purchase price. Residual values, where applicable, are reviewed annually
against prevailing market rates at the consolidated statement of financial position date.
Major overhaul expenditures are capitalized and depreciated over the expected life between overhauls. All other costs relating to
the maintenance of fleet assets are charged to the consolidated statement of earnings on consumption or as incurred.
Rotable parts are purchased, depreciated and disposed of, on a pooled basis. When parts are purchased, the cost is added to
the pool and depreciated over its useful life of 15 to 20 years. The cost to repair rotable parts is recognized in maintenance
expense as incurred.
(k) Intangible assets
Included in intangible assets are costs related to software, landing rights and other. Software and landing rights are carried at
cost less accumulated amortization and are amortized on a straight-line basis over their respective useful lives of five and 20
years. Expected useful lives and amortization methods are reviewed annually.
(l) Impairment
Property and equipment and intangible assets are grouped into cash generating units (CGU) and reviewed for impairment when
events or changes in circumstances indicate that the carrying value of the CGU may not be recoverable. When events or
circumstances indicate that the carrying amount of the CGU may not be recoverable, the long-lived assets are tested for
recoverability by comparing the recoverable amounts, defined as the greater of the CGU’s fair value less cost to sell or value-in-
use, with the carrying amount of the CGU. Fair value is defined as the amount an asset could be exchanged, or a liability settled,
between consenting parties, in an arm’s length transaction. Value-in-use is defined as the present value of the cash flows
expected from the future use or eventual sale of the asset at the end of its useful life. If the carrying value of the CGU exceeds
the greater of the fair value less cost to sell and value-in-use, an impairment loss is recognized in net earnings for the
difference. Impairment losses may subsequently be reversed and recognized in earnings due to changes in events and
circumstances, but only to the extent of the original carrying amount of the asset, net of depreciation or amortization, had the
original impairment not been recognized.
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