Westjet 2015 Annual Report Download - page 50

WestJet Annual Report 2015 | 48
Accounting
Critical accounting judgments and estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments and
estimates that could materially affect the amounts recognized in the financial statements. By their nature, judgments and
estimates may change in light of new facts and circumstances in the internal and external environment. The following
judgments and estimates are those deemed by management to be material to the preparation of the financial statements.
Judgments
(i) Componentization
The componentization of the Corporation’s assets, namely aircraft, are based on management’s judgment of what components
constitute a significant cost in relation to the total cost of an asset and whether these components have similar or dissimilar
patterns of consumption and useful lives for purposes of calculating depreciation and amortization. Management has
considered the market value, depreciation rates and industry practices in determining the level of componentization.
(ii) Depreciation and amortization
Depreciation and amortization methods for aircraft and related components as well as other property, plant and equipment
and intangible assets are based on management’s judgment of the most appropriate method to reflect the pattern of an
asset’s future economic benefit expected to be consumed. Among other factors, management considered industry standards,
manufacturers’ guidelines and company-specific history and experience.
(iii) Impairment
Assessment of impairment is based on management’s judgment of whether there are sufficient internal and external factors
that would indicate that an asset or cash generating unit (CGU) is impaired. The determination of CGUs is also based on
management’s judgment and is an assessment of the smallest group of assets that generate cash inflows independently of
other assets. Management has assessed WestJet as one CGU and considered factors such as whether an active market exists
for the output produced by the asset or group of assets as well as how management monitors and makes decisions about
operations to conclude that there is no impairment at December 31, 2015.
(iv) Lease classification
Assessing whether a lease is a finance lease or an operating lease is based on management’s judgment of the criteria applied
in IAS 17 – Leases. The most prevalent leases are those for aircraft. Management has determined that all of our leased
aircraft are operating leases, as at December 31, 2015.
(v) Unconsolidated structured entities
The classification of our participation in two Canadian De-Icing Facility Corporations (DFCs), nine Canadian Fuel Facility
Corporations (FFCs) and six U.S. FFCs as interests in unconsolidated structured entities is based on management’s judgement
of each entity including contractual relationships and the absence of equity ownership. Management has considered the
restricted, narrow and well-defined objectives and activities of each FFC and DFC, the financial dependence of each FFC and
DFC on the contracting airlines, including us, and the contractual terms of each FFC and DFC preventing any single airline
from having control or significant influence.
(vi) Operating and reportable segments
The assessment of the Corporation as one operating and reportable segment is based on management’s judgement that
resource allocation decisions and performance assessments are done at a consolidated company and fleet level with a view
that the Corporation manages an integrated network of markets with a consolidated fleet of different sized aircraft.