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3.
Critical accounting estimates and judgments
Estimates and judgments are continually evaluated by the directors and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely
equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to
have a material impact to the Group’s results and financial position are tested for sensitivity to changes in the underlying parameters.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next year are explained below.
3.1 Estimated useful lives and residual values of aircraft airframes and engines
The Group reviews annually the estimated useful lives and residual values of aircraft airframes and engines based on factors
such as business plans and strategies, expected level of usage, future technological developments and market prices.
During the financial year, the management changed the useful life of spare engines’ service potential from 9 years to 11 years.
However, there is no material impact to the Group and the Company.
Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors
mentioned above. A reduction in the estimated useful lives and residual values of aircraft airframes and engines as disclosed in
Note 2.5, would increase the recorded depreciation charge and decrease the carrying amount of property, plant and equipment.
A reduction in 5% in the residual value of aircraft airframes and engines would increase the depreciation charge for the financial
year ended 31 December 2017 by RM24,407,000 and RM18,410,000 (2016: RM22,780,000 and RM16,783,000) and decrease
the carrying amount of property, plant and equipment as at 31 December 2017 by RM108,720,000 and RM81,220,000 (2016:
RM91,827,000 and RM70,980,000) for the Group and Company respectively.
3.2 Deferred tax assets
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which
temporary differences can be utilised. Estimating the future taxable profits involves significant assumptions, especially
in respect of regulatory approvals for prospective routes, aircraft delivery, fares, load factor, fuel price, maintenance costs
and currency movements. These assumptions have been built based on past performance and adjusted for non-recurring
circumstances and a reasonable growth rate.
3.3 Provision for aircraft maintenance and overhaul costs
The Group and the Company operate aircraft which are either owned or held under operating lease arrangement. In respect
of the aircraft held under operating lease arrangements, the Group and the Company are contractually obligated to maintain
the aircraft during the lease period and to redeliver the aircraft to the lessors at the end of the lease term, in certain pre-
agreed conditions. Accordingly, the Group and the Company estimate the aircraft maintenance costs required to fulfill these
obligations at the end of the lease period and recognise a provision for these costs at each reporting date.
A provision by its nature is more uncertain than most other items in the statement of financial position. The estimates of the
outcome and financial effects are determined by the judgement of the management, supplemented by experience from similar
transactions. Any revision in assumptions and estimations that causes a material effect to the provision would be adjusted
prospectively in the financial statements.
NOTES TO THE
FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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AirAsia Berhad
REPORTS AND FINANCIAL STATEMENTS
270