1. Provide a critique of the following accounting policies and discuss whether or not you believe Air Canada has adequately applied the accounting principles as per IFRS. Below notes 4 & 6 from the financial statement shows Air Canada accounting treatment for Property and Equipment and Impairment.

4. Special Items 2019 Special items are those items that in management's view are to be separately disclosed by virtue of their size or incidence to enable a full understanding of the Corporation's financial performance. Special items recorded within operating expenses consist of the following: (Canadian dollars in millions) 2020 Impairments $ 315 Workforce reduction provisions Canada emergency wage subsidy, net (554) Other Special items $ (116) $ 127 Impairments In response to capacity reductions related to the impact of the COVID-19 pandemic, Air Canada is accelerating the retirement of certain older aircraft from its fleet consisting of Boeing 767, Airbus A319 and Embraer 190 aircraft. These aircraft are being retired and removed from the cash-generating units for evaluation of whether impairments exist. A fair value less cost to dispose model based on level 3 inputs was used in the evaluation of impairment. The recoverable amount of the owned aircraft is $91 million, equal to expected proceeds on disposal reflecting management's best estimate including inputs from published pricing guides adjusted to reflect management's best estimate of the current market environment. The recoverable amount for the leased aircraft was determined as the estimated net obligation to settle the leases comprised of contractual future lease payments and end of lease return costs. A non-cash impairment charge of $283 million was recorded reflecting the write-down of right-of-use assets for leased aircraft and reduction of carrying values of owned aircraft to expected disposal proceeds. Changes to the estimates around the expected disposal proceeds may result in adjustments to the impairment charge in future periods. In addition, the Corporation recorded an impairment charge of $32 million in the year ended December 31, 2020, related to previously capitalized costs incurred for the development of technology based intangible assets which are now cancelled. 6. Property and Equipment DECEMBER 31, 2020 ACCUMULATED NET DEPRECIATION BOOK VALUE DECEMBER 31, 2019 ACCUMULATED NET DEPRECIATION BOOK VALUE (Canadian delaru aandana | COST COST $ 5,419 553 439 $ 4,616 501 395 OWNED TANGIBLE ASSETS Aircraft and flight equipment Buildings and leasehold improvements Ground and other equipment Purchase deposits and assets under development Owned tangible assets Air Canada aircraft Regional aircraft Land and buildings Right-of-use assets Property and equipment $ 13,251 1,033 665 754 $ 15,703 $ 5,019 2002 $ 6,411 $ 3,340 1.169 177 $ 4,686 $ 11,097 $ 7,832 480 226 754 $ 9,292 $ 1.679 833 333 $ 2,845 $ 12,137 $ 12,920 923 640 1,041 $ 15,524 $ SOSS 1893 447 $ 7,395 $ 22,919 $ 5,512 $ 3,282 1,135 156 $ 4,573 $ 10,085 $ 8,304 422 245 1,041 $ 10,012 $ 1,773 758 291 $ 2,822 $ 12,834 510 $ 7,531 $ 23,234 Additions to owned aircraft in 2020 include 14 new Airbus A220 aircraft As described in Note 4 an impairment charge of $283 million was recorded in 2020 in Special items related to the accelerated retirement of certain older aircraft and ancillary equipment from Air Canada's flect and which charge is aggregated with accumulated depreciation in the table above Included in aircraft and flight equipment are 15 aircraft and 15 spare engines (2019 - 16 aircraft and 15 spare engines) which are leased to CPA carriers with a cost of $389 milion (2019 - $353 million) less accumulated depreciation of $172 million (2019 - $154 million) for a netbook value of $217 million (2019 - $199 million). Depreciation expense for 2020 for these aircraft and flight equipment amounted to $24 million (2019 - $21 million) As further described in Note 22, during 2020, the Corporation sold and leased back nine Boeing 737 MAX aircraft. Certain property and equipment are pledged as collateral as further described under the applicable debt instruments in Note 9. DEPRECIATION JANUARY 1 RECLASSIC AND DECEMBER 31, (Canadian dollari milion 2020 ADDITIONS CATION DISPOSALS IMPAIRMENT 2020 $ 720 $ 269 112 $ (419) $ (1042) 154) $ 8,304 422 245 1.041 $ 10,012 28 94 842 $ 7,832 480 226 754 $ 9,292 (381) $ $ $ (419) $ (1,143) OWNED TANGIBLE ASSETS Aircraft and fight equipment Buildings and leasehold improvements Ground and other equipment Purchase deposits and assets under development Owned tangible assets Right-of-use assets Air Canada aircraft Regional aircraft Land and buildings Right-of-use assets Property and equipment $ $ (667) (176) $ 1.773 758 291 $ 2,822 $ 12.834 $ 573 257 75 $ $ 1,747 $ (6) 3 $ (9) $ (428) (20) $ 1,679 833 333 $ 2,845 $ 12,137 905 $ $ $ (873) $ 12,016) JANUARY 1 2019 RECLASSIF CATION DECEMBER 31, 2013 Canadian dollar in million ADDITIONS DISPOSALS DEPRECIATION $ $ (14 $ 8,109 404 197 933 $ 9,643 $ 893 26 66 525 $ 1,510 355 41 21 (417) $ (1,039) (49) (38) $ 8,304 422 245 1041 $ 10,012 $ $ (15) $ (1,126) OWNED TANGIBLE ASSETS Aircraft and flight equipment Buildings and leasehold improvements Ground and other equipment Purchase deposits and assets under development Owned tangible assets Right-of-use assets Air Canada aircraft Regional aircraft Land and buildings Right-of-use assets Property and equipment 704 $ $ ES in $ 1,620 707 213 $ 2,540 $ 12,183 $ 234 104 $ 1,042 $ 2,552 $ (544) (176) (26) $ (746) $(1,872) $ 1,773 758 291 $ 2,822 $ 12.834 $ $ $ $ (14) (29) Depreciation and amortization recorded in the consolidated statement of operations is detailed as follows. 2020 2019 $ 1,039 $ 930 54 Canadian dollars in million Aircraft and flight equipment Buildings and leasehold improvements Ground and other equipment Owned tangible assets Air Canada aircraft Regional aircraft Land and buildings Right-of-use assets Property and equipment Spare part and supplies inventory Intangible assets Depreciation and amortization 1,031 496 176 30 702 1,733 14 102 $ 1,849 38 1,126 544 176 26 746 1,872 19 95 $ 1,986 4. Special Items 2019 Special items are those items that in management's view are to be separately disclosed by virtue of their size or incidence to enable a full understanding of the Corporation's financial performance. Special items recorded within operating expenses consist of the following: (Canadian dollars in millions) 2020 Impairments $ 315 Workforce reduction provisions Canada emergency wage subsidy, net (554) Other Special items $ (116) $ 127 Impairments In response to capacity reductions related to the impact of the COVID-19 pandemic, Air Canada is accelerating the retirement of certain older aircraft from its fleet consisting of Boeing 767, Airbus A319 and Embraer 190 aircraft. These aircraft are being retired and removed from the cash-generating units for evaluation of whether impairments exist. A fair value less cost to dispose model based on level 3 inputs was used in the evaluation of impairment. The recoverable amount of the owned aircraft is $91 million, equal to expected proceeds on disposal reflecting management's best estimate including inputs from published pricing guides adjusted to reflect management's best estimate of the current market environment. The recoverable amount for the leased aircraft was determined as the estimated net obligation to settle the leases comprised of contractual future lease payments and end of lease return costs. A non-cash impairment charge of $283 million was recorded reflecting the write-down of right-of-use assets for leased aircraft and reduction of carrying values of owned aircraft to expected disposal proceeds. Changes to the estimates around the expected disposal proceeds may result in adjustments to the impairment charge in future periods. In addition, the Corporation recorded an impairment charge of $32 million in the year ended December 31, 2020, related to previously capitalized costs incurred for the development of technology based intangible assets which are now cancelled. 6. Property and Equipment DECEMBER 31, 2020 ACCUMULATED NET DEPRECIATION BOOK VALUE DECEMBER 31, 2019 ACCUMULATED NET DEPRECIATION BOOK VALUE (Canadian delaru aandana | COST COST $ 5,419 553 439 $ 4,616 501 395 OWNED TANGIBLE ASSETS Aircraft and flight equipment Buildings and leasehold improvements Ground and other equipment Purchase deposits and assets under development Owned tangible assets Air Canada aircraft Regional aircraft Land and buildings Right-of-use assets Property and equipment $ 13,251 1,033 665 754 $ 15,703 $ 5,019 2002 $ 6,411 $ 3,340 1.169 177 $ 4,686 $ 11,097 $ 7,832 480 226 754 $ 9,292 $ 1.679 833 333 $ 2,845 $ 12,137 $ 12,920 923 640 1,041 $ 15,524 $ SOSS 1893 447 $ 7,395 $ 22,919 $ 5,512 $ 3,282 1,135 156 $ 4,573 $ 10,085 $ 8,304 422 245 1,041 $ 10,012 $ 1,773 758 291 $ 2,822 $ 12,834 510 $ 7,531 $ 23,234 Additions to owned aircraft in 2020 include 14 new Airbus A220 aircraft As described in Note 4 an impairment charge of $283 million was recorded in 2020 in Special items related to the accelerated retirement of certain older aircraft and ancillary equipment from Air Canada's flect and which charge is aggregated with accumulated depreciation in the table above Included in aircraft and flight equipment are 15 aircraft and 15 spare engines (2019 - 16 aircraft and 15 spare engines) which are leased to CPA carriers with a cost of $389 milion (2019 - $353 million) less accumulated depreciation of $172 million (2019 - $154 million) for a netbook value of $217 million (2019 - $199 million). Depreciation expense for 2020 for these aircraft and flight equipment amounted to $24 million (2019 - $21 million) As further described in Note 22, during 2020, the Corporation sold and leased back nine Boeing 737 MAX aircraft. Certain property and equipment are pledged as collateral as further described under the applicable debt instruments in Note 9. DEPRECIATION JANUARY 1 RECLASSIC AND DECEMBER 31, (Canadian dollari milion 2020 ADDITIONS CATION DISPOSALS IMPAIRMENT 2020 $ 720 $ 269 112 $ (419) $ (1042) 154) $ 8,304 422 245 1.041 $ 10,012 28 94 842 $ 7,832 480 226 754 $ 9,292 (381) $ $ $ (419) $ (1,143) OWNED TANGIBLE ASSETS Aircraft and fight equipment Buildings and leasehold improvements Ground and other equipment Purchase deposits and assets under development Owned tangible assets Right-of-use assets Air Canada aircraft Regional aircraft Land and buildings Right-of-use assets Property and equipment $ $ (667) (176) $ 1.773 758 291 $ 2,822 $ 12.834 $ 573 257 75 $ $ 1,747 $ (6) 3 $ (9) $ (428) (20) $ 1,679 833 333 $ 2,845 $ 12,137 905 $ $ $ (873) $ 12,016) JANUARY 1 2019 RECLASSIF CATION DECEMBER 31, 2013 Canadian dollar in million ADDITIONS DISPOSALS DEPRECIATION $ $ (14 $ 8,109 404 197 933 $ 9,643 $ 893 26 66 525 $ 1,510 355 41 21 (417) $ (1,039) (49) (38) $ 8,304 422 245 1041 $ 10,012 $ $ (15) $ (1,126) OWNED TANGIBLE ASSETS Aircraft and flight equipment Buildings and leasehold improvements Ground and other equipment Purchase deposits and assets under development Owned tangible assets Right-of-use assets Air Canada aircraft Regional aircraft Land and buildings Right-of-use assets Property and equipment 704 $ $ ES in $ 1,620 707 213 $ 2,540 $ 12,183 $ 234 104 $ 1,042 $ 2,552 $ (544) (176) (26) $ (746) $(1,872) $ 1,773 758 291 $ 2,822 $ 12.834 $ $ $ $ (14) (29) Depreciation and amortization recorded in the consolidated statement of operations is detailed as follows. 2020 2019 $ 1,039 $ 930 54 Canadian dollars in million Aircraft and flight equipment Buildings and leasehold improvements Ground and other equipment Owned tangible assets Air Canada aircraft Regional aircraft Land and buildings Right-of-use assets Property and equipment Spare part and supplies inventory Intangible assets Depreciation and amortization 1,031 496 176 30 702 1,733 14 102 $ 1,849 38 1,126 544 176 26 746 1,872 19 95 $ 1,986