2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.5 Property, plant and equipment (cont’d.) Freehold land is not depreciated. Significant parts of other item of property, plant and equipment are depreciated separately over their estimated useful lives in accordance with the principle in MFRS 116 ‘Property, Plant and Equipment’. Depreciation is calculated using the straight-line method to write-off the cost of the assets to their residual values over their estimated useful lives. Aircraft – engines, airframes and spare engines excluding service potential 25 years – service potential of engines 8 years – service potential of airframes 13 years – service potential of spare engines 11 years Aircraft spares 10 years Aircraft fixtures and fittings Useful life of aircraft or remaining lease term of aircraft, whichever is shorter Buildings 28.75 years Motor vehicles 5 years Office equipment, furniture and fittings 5 years Office renovation 5 years Simulator equipment 25 years Operating plant and ground equipment 5 years In-flight equipment 5 years Training equipment 5 years Service potential of 8 years represents the period over which the expected cost of the first major aircraft engine overhaul is depreciated. Subsequent to the engine overhaul, the actual cost incurred is capitalised and depreciated over the subsequent 8 years. Service potential of 13 years for airframes represents the period over which the expected cost of the first major airframe check is depreciated. Subsequent to the airframe check, the actual cost incurred is capitalised and depreciated over the subsequent 13 years. Assets not yet in operation are stated at cost and are not depreciated until the assets are ready for their intended use. Useful lives of assets are reviewed and adjusted if appropriate, at the balance sheet date. Residual values, where applicable, are reviewed annually against prevailing market rates at the balance sheet date for equivalent aged assets and depreciation rates are adjusted accordingly on a prospective basis. For the current financial year ended 31 December 2021, the estimated residual value for aircraft airframes and engines excluding service potential is 10% of their cost (2020: 10% of their cost). An element of the cost of an acquired aircraft is attributed on acquisition to its service potential, reflecting the maintenance condition of its engines and airframes. This cost, which can equate to a substantial element of the total aircraft cost, is amortised over the shorter of the period to the next checks or the remaining life of the aircraft. At the end of the reporting period, the Group assesses whether there is any indication of impairment. If such an indication exists, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting policy Note 2.8 on impairment of non-financial assets. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in profit or loss. Deposits on aircraft purchase are recognised as deposits and subsequently included as part of the cost of the aircraft and are depreciated from the date that aircraft is ready for its intended use. F I N A N C I A L S T A T E M E N T S A N N U A L R E P O R T 2 0 2 1 2 2 3
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