Access the annual report for British Airways Plc (BA) for the year ended December 31, 2017, from its parent companys website (www iagshares com) British Airways is now a part of the International Air...

Question

Access the annual report for British Airways Plc (BA) for the year ended December 31, 2017, from its parent companys website (www iagshares com) British Airways is now a part of the International Airlines Group Use the amounts in and notes to BAs group (that is, consolidated) financial statements t...

Accepted Answer

a British Airways reports goodwill landing rights emission allowances and software as intangible assets on its December 31 2017 group balance sheet British Airways Plc prepares its financial statements in accordance with IFRS as endorsed by the European Union which differs in certain respects from IFRS as issued by the IASB The detailed amounts all in millions of British Pounds found in Note 16 were Cost Accumulated amortization Net book amount Goodwill 40 0 40 Landing rights 693 49 644 Emissions allowances 16 0 16 Software 583 292 291 Total 1332 341 991 The accounting policies used by the company are explained in Note 2 Landing rights at specific airports acquired from other airlines are capitalized at their cost or fair value when acquired through a business combination Those landing rights outside of the EU European Union are amortized on a straightline basis over no more than 20 years Capitalized landing rights within the EU are not amortized because regulations within the EU consider the rights to be perpetual giving them an indefinite economic life They are tested annually for impairment British Airways capitalizes the cost of purchased or internally developed software that is considered separable from its related hardware There are no details provided on the nature of this software and how it is used by the company These costs are amortized on a straightline basis over a period not exceeding five years with certain specific software developments amortized over a period of up to ten years Emissions allowances the cost of permits governing allowable emissions acquired under the European Emissions Trading Scheme are recognized at cost and are not amortized Instead they are tested for impairment whenever there is an indication that their carrying amounts may not be recoverable Note that this represents a discrepancy with IFRS as issued by the IASB as intangibles should be tested for possible impairment at least annually Goodwill represents the excess of the cost of business acquisitions over their fair value and this amount is capitalized but not amortized Goodwill is allocated to cashgenerating units CGUs for impairment testing and this testing is carried out annually Any indication that the cost of the goodwill recognized may not be recoverable results in recognizing an impairment loss Note 2 does not comment specifically on testing the landing rights or the software book amounts for impairment but Note 17 indicates that the EU landing rights are allocated to cashgenerating units and reviewed annually Also Note 2 states that in general all of its intangible assets are tested annually for impairment b Note 16 indicates the following Landing Rights Software Balance January 1 729 532 Additions 1 51 Reclassification to held for sale 39 Exchange differences 2 Balance December 31 693 583 Amortization Balance January 1 73 239 Charge for the year 1 54 Reclassification to held for sale 26 Exchange differences 1 1 Balance December 31 49 292 The group paid 1 million for landing rights in 2017 and there was also a 2 million increase in their carrying amount due to foreign exchange differences Because amortization is only applied to nonEU based rights and the annual charge in 2017 was 1 million for the year based on total landing rights of 693 million the presumption is that most of the rights relate to EU airports Also although there was no charge for amortization shown in 2016 the footnotes to the schedule indicate that the amount was less than 1 million This indicates that most landing rights in 2016 related to EU landing rights and that new landing rights acquired in 2017 triggered most of the 1 million charge for amortization c BA conducts an annual impairment review on all intangibles with an indefinite economic life The indefinitelife intangibles are assigned to a cash generating unit for the purposes of impairment testingOne CGU was identified in 2017 network airline operations which includeslanding rights within the EU and all of the goodwill Network airline operations CGU the recoverable amount used to compare with the book amount is based on the cashgenerating units value in use This is determined based on discounted cash flow projections using the fiveyear business plans approved by BAs board of directors which are then extended using longterm growth rates of the economies within which BA operates The companys posttax weighted average cost of capital adjusted for specific risks associated with the assets is used to discount the cash flows and was 85Another key input is the longterm growth rate of 23While the resulting recoverable amount was not disclosed in the note it must have been more than the carrying amount of the underlying assets because no impairment charge resulted from the review performed The company could not foresee conditions where the recoverable amount would be less than book value The company did record 14 million in impairment during 2017 This impairment came from its discontinued operations as disclosed in note 12 Landing rights in its Openskies operations are disclosed as a held for sale asset at December 31 2017 with planned sale effective January 1 2018 The carrying value at Dec 31 2017 of the net assets of Openskies was more than the fair value less costs to sell resulting in an impairment charge of 14 million This impairment charge is presented in the companys income statement ...

Access the annual report for British Airways Plc (BA) for the year ended December 31, 2017, from

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Intermediate Accounting Volume 1

Access the annual report for British Airways Plc (BA) for the year ended December 31, 2017, from

Question:

Step by Step Answer:

Intermediate Accounting Volume 1

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