Chapter 3
Long-Term Assets
141
Canadian National Railway disclosed its depreciation policy in Note 1 (summary of significant
accounting policies), as shown below.
Canadian National Railway Company
U.S. GAAP
201
Expenditures relating to the Company’s properties that do not
meet the Company’s capitalization criteria are considered normal
repairs and maintenance and are expensed. For Track and road-
way properties, such expenditures include but are not limited to
spot tie replacement, spot or broken rail replacement, physical
track inspection for detection of rail defects and minor track cor-
rections, and other general maintenance of track infrastructure.
Accounting policy for depreciation
Railroad properties are carried at cost less accumulated deprecia-
tion including asset impairment write-downs. The cost of proper-
ties, including those under capital leases, net of asset impairment
write-downs, is depreciated on a straight-line basis over their
estimated service lives, measured in years, except for rail which
is measured in millions of gross ton miles. The Company follows
the group method of depreciation whereby a single composite
depreciation rate is applied to the gross investment in a class
of similar assets, despite small differences in the service life or
salvage value of individual property units within the same asset
class. The Company uses approximately 40 different depreciable
asset classes.
For all depreciable assets, the depreciation rate is based on
the estimated service lives of the assets. Assessing the reason-
ableness of the estimated service lives of properties requires
judgment and is based on currently available information, includ-
ing periodic depreciation studies conducted by the Company.
The Company’s U.S. properties are subject to comprehensive
depreciation studies as required by the Surface Transportation
Board (STB) and are conducted by external experts. Depreciation
studies for Canadian properties are not required by regulation
and are conducted internally. Studies are performed on specific
asset groups on a periodic basis. Changes in the estimated ser-
vice lives of the assets and their related composite depreciation
rates are implemented prospectively.
The service life of the rail asset is based on expected future
usage of the rail in its existing condition, determined using rail-
road industry research and testing (based on rail characteristics
such as weight, curvature and metallurgy), less the rail asset’s
usage to date. The annual composite depreciation rate for rail
assets is determined by dividing the estimated annual number
of gross tons carried over the rail by the estimated service life of
the rail measured in millions of gross ton miles. The Company
amortizes the cost of rail grinding over the remaining life of the
rail asset, which includes the incremental life extension generat-
ed by rail grinding.
Intangible assets
Intangible assets consist mainly of custo
lationships assumed through past acquis
amortized on a straight-line basis over 40 t
The Company reviews the carrying a
assets held and used whenever events o
stances indicate that such carrying amount
able based on future undiscounted cash
deemed impaired as a result of such revie
lower of carrying amount or fair value.
Accounts receivable securitization
The Company accounts for its accounts re
program under FASB ASC 860,
Transfers
on the structure of the program, the Com
proceeds as a secured borrowing.
Pensions
Pension costs are determined using actuar
iodic benefit cost is charged to income an
(a)
the cost of pension benefits provided in
ees’ services rendered during the year;
(b)
the interest cost of pension obligations;
(c)
the expected long-term return on pensi
(d)
the amortization of prior service costs
the expected average remaining servic
group covered by the plans; and
(e)
the amortization of cumulative net act
in excess of 10% of the greater of the
ances of the projected benefit obligat
value of plan assets, over the expect
service life of the employee group cove
The pension plans are funded through
mined in accordance with the projected un
method.
Postretirement benefits other than pen
The Company accrues the cost of postreti
than pensions using actuarial methods.
are funded as they become due, include lif
medical benefits and, for a closed group
travel benefits.
The Company amortizes the cumulati
and losses in excess of 10% of the projecte
the beginning of the year, over the expect
service life of the employee group covered
