In the application of the Company's accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
Critical judgements in applying the Company's accounting policies
In the director's opinion there are no critical judgements, apart from those involving estimations (dealt with separately below), that they have made in applying group's accounting policies and that have had a significant effect on the amounts recognised in the financial statements.
Key sources of estimation uncertainty
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
Short leasehold value:
The Company holds a leasehold interest in land and buildings which are used in the Company's trade. During the period, the leasehold interest was revalued by the directors from £4.9 million to £21.4 million.
The determination of the fair value of the leasehold interest involves significant management estimation and judgement. In determining the fair value, the directors have considered the land and buildings separately and have divided the leasehold interest into a number of sections based on their individual characteristics and potential use.
The majority of the land associated with the leasehold has been valued by the directors by reference to information published on the relevant government website relating to minor airfields in the region. The directors have considered this information to be an appropriate source of market evidence when estimating the fair value of the relevant land.
The residual land and buildings associated with the short leasehold have been valued by the directors by reference to a probable arm's length transaction with a third party in respect of the leasehold interest. The proposed transaction is non-binding and does not constitute a guarantee that the transaction will complete. However, the directors consider the transaction to represent probable market evidence of the fair value of the relevant land and buildings at the reporting date.
The valuation is therefore subject to estimation uncertainty, principally in relation to the assumptions underlying the market evidence used, the likelihood of the proposed transaction proceeding and the price that would ultimately be agreed in an arm's length transaction. A change in these assumptions or in the circumstances surrounding the proposed transaction could result in a material adjustment to the carrying amount of the leasehold interest in future reporting periods.
Aircraft fixed asset value:
The Company owns aircraft which are subject to significant ongoing maintenance and operating costs. The directors regularly review the estimated useful lives and residual values of the aircraft, taking into consideration factors including the condition and age of the aircraft, expected future usage, maintenance programmes, and the anticipated residual value at the end of their useful economic lives.
Changes in these estimates can have a material effect on the depreciation charge and carrying amount of the aircraft. Where the directors determine that the estimated useful life or residual value has changed, the depreciation charge is adjusted prospectively in accordance with the Company's accounting policy. The directors also consider whether changes in the condition, expected future use or recoverable amount of an aircraft indicate that an impairment review is required.
The estimation of useful lives and residual values involves judgement and is subject to uncertainty, as actual outcomes may differ from the assumptions made by the directors.