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Canadian SerieS

FINANCIAL REPORTING

Guide to International FinancialReporting Standards in Canada

IAS 16 Property, Plant and EquipmentIrene Wiecek, FCPA, FCA

Martha Dunlop, FCPA, FCA

Jane Bowen, FCPA, FCA

primary editor: Alex Fisher, CPA, CA

June 2013

Canadian SerieS

Guide to International Financial Reporting Standards in Canada

IAS 16 Property, Plant and EquipmentIrene Wiecek, FCPA, FCA

Martha Dunlop, FCPA, FCA

Jane Bowen, FCPA, FCA

primary editor: Alex Fisher, CPA, CA

June 2013

iiiIAS 16 Property, Plant and Equipment

June 2013

Table of ContentsPreface 1

Research Resources 4

Notice to Readers 4

Introduction to IAS 16 5

Standards Update 6

IASB 6

Methods of Depreciation and Amortization 6

Bearer Biological Assets 6

Annual Improvements 7

IFRIC 7

Key Standards Referred to in This Publication 8

IAS 16 Definitions 9

Overview of Key Requirements 10

Analysis of Relevant Issues 12

Scope 12

Recognition of Initial and Subsequent Costs 14

Items Acquired for Safety or Environmental Reasons 14

Spare Parts, Standby Equipment and Servicing Equipment 15

Subsequent Costs 15

Measurement at Recognition 17

Costs of a Self-Constructed Asset 18

Borrowing Costs 19

Cessation of Cost Recognition 20

Income and Related Expenses of Incidental Operations 20

Assets Acquired Using Government Grants 21

Assets Held under a Finance Lease 21

Non-Monetary Transactions 21

Transfers of Assets from Customers [IFRIC 18] 22

Subsequent Measurement 24

Cost Model 24

Revaluation Model 24

iv Guide to International Financial Reporting in Canada

Costs of Dismantling, Removal and Site Restoration (Decommissioning Costs) and Changes to These Costs 31

Depreciation 33

Component Accounting 34

Residual Value 36

Useful Life 36

Depreciation Start Date 39

Depreciation End Date 40

Depreciation Method 40

Impairment and Compensation for Impairment 43

Compensation for Impairment 44

Derecognition of PP&E 44

Disclosure 46

Accounting Policy Choices 50

Significant Judgments and Estimates 53

Appendix A — Acronyms Used 55

List of ExtractsExtract 1 — Excerpt from The Brick Ltd. 2012 Financial StatementsNote 3 — Significant Accounting Policies 13

Extract 2 — Excerpt from Sherritt International Corporation 2012 Financial StatementsNote 2 — Summary of Significant Accounting Policies 15

Extract 3 — Excerpt from Air Canada 2012 Financial StatementsNote 2 — Basis of Presentation and Summary of Significant Accounting Policies 16

Extract 4 — Excerpt from Saskatchewan Transportation Company 2012 Financial StatementsNote 4 — Significant Accounting Policies 16

Extract 5 — Excerpt from Bombardier Inc. 2012 Financial StatementsNote 2 — Summary of Significant Accounting Policies 17

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June 2013

Table of Contents

Extract 6 — Excerpt from Rogers Communications Inc. 2012 Financial StatementsNote 2 — Significant Accounting Policies 19

Extract 7 — Excerpt from Potash Corporation of Saskatchewan Inc. 2012 Financial StatementsNote 5 — Property, Plant and Equipment 20

Extract 8 — Excerpt from Cenovus Energy Inc. 2012 Financial StatementsNote 3 — Summary of Significant Accounting Policies 21

Extract 9 — Excerpt from the Great Canadian Gaming Corporation 2012 Financial StatementsNote 3 — Critical Accounting Estimates and Judgments 22

Extract 10 — Excerpt from The Brick Ltd. 2012 Financial StatementsNote 3 — Significant Accounting Policies 24

Extract 11 — Excerpt from Husky Energy Inc. 2012 Financial StatementsNote 3 — Significant Accounting Policies 33

Extract 12 — Excerpt from Air Canada 2012 Financial StatementsNote 2 — Basis of Presentation and Summary of Significant Accounting Policies 35

Extract 13 — Excerpt from Westjet Airlines Ltd. 2012 Financial StatementsNote 1 — Statement of Significant Accounting Policies 36

Extract 14 — Excerpt from Newalta Corporation 2012 Financial StatementsNote 2 — Significant Accounting Policies 37

Extract 15 — Excerpt from Sears Canada Inc. 2012 Financial StatementsNote 2 — Significant Accounting Policies 43

Extract 16 — Excerpt from Royal Bank of Canada 2012 Financial StatementsNote 2 — Summary of Significant Accounting Policies, Estimates and Judgments 43

Extract 17 — Excerpt from Shoppers Drug Mart Corporation 2012 Financial StatementsNote 3 — Significant Accounting Policies 45

Extract 18 — Excerpt from Telus Corporation 2012 Financial StatementsNote 15 — Property, Plant and Equipment 50

Extract 19 — Excerpt from Enerflex Ltd. 2012 Financial StatementsNote 4 — Significant Accounting Estimates and Judgments 54

vi Guide to International Financial Reporting in Canada

List of IllustrationsIllustration 1 — Included and Excluded Costs of PP&E 17

Illustration 2 — Application of the Revaluation Model 25

Illustration 3 — Recognition of Revaluation Changes 28

Illustration 4 — IFRIC 1 — Changes in Existing Decommissioning, Restoration and Similar Liabilities 32

Illustration 5 — Determining the Expected Useful Life of an Item of PP&E 37

Illustration 6 — Summary of Some IAS 16 Disclosure Requirements 46

Illustration 7 — Some Significant Judgments and Sources of Estimation Uncer-tainty Under IAS 16 53

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June 2013

IAS 16 Property, Plant and Equipment

PrefaceThis publication is part of the Guide to International Financial Reporting Stan-dards in Canada series published by the Chartered Professional Accountants of Canada (CPA Canada) to support its members.

The objective of this publication, IAS 16 Property, Plant and Equipment, is to help you understand IAS 16 and the IASB material that accompanies it. The publication begins with an introduction and standards update and then includes definitions, an overview chart, an analysis section, a section on accounting policies and one on significant judgments and estimates.

Every attempt has been made to use plain language and to avoid mere restatement of the IFRS standards although, where deemed necessary, specific wording from the standards is referred to.

This publication has been carefully prepared, but it necessarily contains infor-mation in summarized form and is, therefore, intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment.

The overview section takes a high-level look at the key requirements of the standard in a chart format (the Overview chart). Specific “touchstone” refer-ences to IAS 16 are included in the Overview chart to help you navigate the standard. These are not meant to be comprehensive references, rather a

2 Guide to International Financial Reporting in Canada

starting point for your research. The Analysis section analyzes the more com-plex areas of the standard in more depth. Note that, where parts of the stan-dard are more straightforward, they are included in the Overview chart only as it is felt that this coverage is at a sufficient level.

Illustrations, examples and extracts have been used to explain a particular concept and/or provide insight into how the standard is applied. Financial statement note extracts have been selected to illustrate a particular point but do not necessarily represent best practices.

Several features have been included to enhance understanding as follows:

1. Illustrations, including the following:• charts• decision trees• summaries

These illustrations add value by summarizing, grouping, highlighting simi-larities/differences and working through decision processes in applying the standard.

2. Examples• IASB Illustrative Examples excerpts• IASB examples excerpted from the standard• other examples

These examples add value by showing how a particular part of the standard might be applied in a specific situation. Note that IAS 16 does not include any illustrative examples and therefore the examples included in this publi-cation are not authoritative.

3. Extracts from the IASB standards, including the following:• definitions• select quotes

Even though every attempt has been made to use plain language, in some cases, it has been important to use the specific wording in the standard to get a point across.

4. Extracts from financial statements — financial statements of prominent Canadian companies have been selected, including those that were recipi-ents of the CPA Canada Corporate Reporting Awards. The report on the Corporate Reporting Awards, including a list of winners, may be found at www.cpacanada.ca.

The extracts included illustrate a particular aspect. It may be useful to review the complete note, which may be found at www.sedar.com.

3IAS 16 Property, Plant and Equipment

June 2013

5. Non-IFRS Interpretations Committee insights — Items discussed but not taken to the IASB agenda, referred to as NIFRICs (Non-IFRICs), have been included because, in some cases, they provide insights into the standard setting decision processes.

6. IFRS Discussion Group (IDG) insights — references to IDG discussions. The IDG was established by the Canadian Accounting Standards Board (AcSB) in 2009. Its aim is to provide a public forum for the discussion of issues relating to IFRSs and to collect the views of Canadians experiencing issues in implementing IFRSs. These discussions are not meant to provide authori-tative guidance; however, they do help clarify issues and allow interested parties to learn how others are working through their financial reporting issues and applying judgment in the application of IFRSs. These have been drawn from the publically available reports of the IDG meetings. The IDG’s meetings are recorded and audio webcasts are archived on the AcSB website (www.frascanada.ca). Discussants include preparers, practitioners, regulators and users of financial statements.

7. References to other relevant CPA Canada material.

8. This publication is part of a series with various publication dates. The dates have been noted on each publication.

Where necessary, icons have been used throughout the publication to refer to many of these features so the reader can easily distinguish the sources of the information.

Insight

Application insights explain, discuss and/or debate a particular IFRS application issue.

Application insights include:• NIFRICs (Non-IFRICs)• IFRS Discussion Group reports

Viewpoints

Viewpoints refer to the Viewpoints: Applying IFRSs in the Min-ing Industry or the Viewpoints: Applying IFRSs in the Oil and Gas Industry — a series of papers that addresses specific IFRS application issues.

E xa mpleExamples illustrate how a particular part of an IFRS might be applied in a specific situation.


Statistics Statistics on particular IFRS application practices highlight common practices and/or application approaches.

Resources Resources include references to other relevant CPA Canada material.

Research ResourcesCPA Canada has compiled various IFRS technical summaries, practical applica-tion guides and frequently-asked-question documents aimed at supporting the understanding and application of IFRSs. For more information on IFRSs visit our website.

Notice to ReadersThe Research, Guidance and Support Group of the Chartered Professional Accountants of Canada (CPA Canada) commissioned this publication as part of its continuing research program. The views and conclusions expressed in this publication are those of the authors. They have not been adopted, endorsed, approved or otherwise acted upon by a Board or Committee of CPA Canada or any Provincial Institute / Ordre. CPA Canada and the authors do not accept any responsibility or liability that might occur directly or indirectly as a conse-quence of the use, application or reliance on this material.


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Introduction to IAS 16IAS 16 prescribes the accounting treatment for property, plant and equipment (PP&E) held for use in the production or supply of goods or services, for rental to others or for administrative purposes, that are expected to be used for more than one period. IAS 16 allows an accounting policy choice for PP&E: items may be carried at cost or at a revalued amount.

IAS 16 provides guidance on what may, and what may not, be considered PP&E, the recognition and measurement of initial and subsequent costs and the derecognition of an item of PP&E.

IAS 16 includes a Basis for Conclusions document that summarizes the Inter-national Accounting Standards Board’s (IASB) considerations and conclusions in the development of this standard. IAS 16 does not include any illustrative examples.

The costs to dismantle, remove and restore items of PP&E are included in the carrying amount of the asset. IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities, provides guidance on accounting for the effect of changes in the measurement of existing decommissioning liabilities and discusses the related impact on PP&E.

IFRIC 18 Transfers of Assets from Customers, applies to the accounting for transfers of items of PP&E by entities that receive such transfers from their customers. This IFRIC provides guidance on the recognition and measurement of such asset transfers.

This publication is based on the requirements of IFRS standards and inter-pretations for annual periods beginning January 1, 2013. Where appropriate, for illustration purposes, certain note-disclosure examples are presented from financial statements with annual periods ending before January 1, 2013.

This publication has not been updated since the publication date of June 2013. readers are cautioned that certain aspects of iFrSs may have changed since the publication date.


Standards Update

IASB

Methods of Depreciation and AmortizationIn December 2012, the IASB issued an Exposure Draft (ED), Clarification of Acceptable Methods of Depreciation and Amortization (Proposed Amendments to IAS 16 and IAS 38), based on a submission from the IFRS Interpretations Committee. IAS 16.60 requires the depreciation method to reflect the pattern in which an asset’s future economic benefits are expected to be consumed. The proposed revisions are intended to clarify that revenue-based methods are not acceptable methods of depreciating or amortizing an item of PP&E or an intangible asset. This is because a revenue-based method reflects the eco-nomic benefits being generated from an asset rather than the expected pat-tern of consumption of the asset.

The proposed amendment also provides further guidance on the application of the diminishing balance method of depreciation. This proposed guidance clarifies that information about technical or commercial obsolescence of the output of the asset (product or service) is relevant for estimating the pattern of consumption of future economic benefits and the useful life of the asset. As an example, the ED notes that an expected future reduction in the unit selling price of the output, as a result of technical or commercial obsolescence, could be an indication of the diminution of the future economic benefits of the asset.

The comment period on this ED closed April 2, 2013, and the expected com-pletion date is the fourth quarter of 2013.

Bearer Biological AssetsThe IASB has a limited-scope project to amend IAS 41 to address bearer bio-logical assets (e.g., grapevines, dairy cows, etc.). These assets are accounted for under IAS 41 at fair value less costs to sell based on the principle that the transformation of bearer biological assets is best reflected by fair value mea-surement. The counter argument is that mature bearer biological assets are not going through biological transformation and, as such, are similar to manufac-turing assets and should be accounted for under IAS 16.

This project will focus on measurement of bearer biological assets that are plants. This ED was issued on June 26, 2013, and was available for comment until October 28, 2013.


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Annual Improvements

2010 — 2012 cycle (ED issued May 2012)The IASB proposes an amendment to IAS 16 to address concerns about the computation of accumulated depreciation at the date of a revaluation of PP&E for entities that apply the revaluation method to account for PP&E. The con-cern stems from differing practices in computing accumulated depreciation for a revalued item where the residual value, the useful life or the depreciation method is re-estimated before a revaluation.

When an item of PP&E is revalued, IAS 16 currently allows entities a choice to (1) restate accumulated depreciation proportionately with the change in the gross carrying amount of the asset, or (2) eliminate accumulated depreciation against the gross carrying amount of the asset. A problem arises with the use of method (1) if the residual value, useful life or depreciation method is re-estimated before a revaluation adjustment. In these situations, the restatement of accumulated depreciation proportionately would not result in the carrying amount of the asset being equal to the revalued asset amount less the reval-ued accumulated depreciation. The proposed amendment to IAS 16 (and IAS 38) would state that the accumulated depreciation is computed as the differ-ence between the gross and net carrying amounts. The proposed amendment would also clarify that the determination of accumulated depreciation does not depend on the selection of the valuation technique.

A similar amendment is proposed in IAS 38 for intangible assets measured using the revaluation model.

It is expected that this amendment will be approved and issued in the fourth quarter of 2013 and will be effective for annual periods beginning on or after January 1, 2014, with early adoption permitted.

IFRICThe Interpretations Committee received a request to address an issue related to contractual arrangements within the scope of IFRIC 12, Service Concession Arrangements. This request is to clarify in what circumstances contractual pay-ments made by an operator under a service concession arrangement should:1. be included in the measurement of an asset and liability at the start of the

concession; or2. be accounted for as executory in nature (i.e., be recognized as expenses as

incurred over the term of the concession arrangement).


At the January 2013 meeting, the Interpretations Committee tentatively decided to recommend that the IASB amend IAS 16 to require the adjustments of the carrying amount of a financial liability, other than those adjustments for finance costs not eligible for capitalization in accordance with IAS 23, be recognized as corresponding adjustments to the cost of the asset to the extent that IAS 16 or IAS 38 requires them. The Interpretations Committee also decided to propose amendments to IFRIC 12.

Key Standards Referred to in This PublicationThe following is a list of standards mentioned in this publication. Names of the standards have been included for the sake of clarity. The standards have been separated into two groups for purposes of this list — primary and secondary. The primary standards are the main standards that deal with the topic under discussion (in this publication — property, plant and equipment). The secondary standards are those referred to in this publication but not discussed in depth.

Primary standards:

IAS 16 Property, Plant and EquipmentIFRIC 1 Changes in Existing Decommissioning, Restoration and Similar LiabilitiesIFRIC 18 Transfers of Assets from Customers

Secondary standards:

IFRS 2 Share-based PaymentsIFRS 5 Non-current Assets Held for Sale and Discontinued OperationsIFRS 6 Exploration for and Evaluation of Mineral ResourcesIFRS 13 Fair Value MeasurementIAS 1 Presentation of Financial StatementsIAS 2 InventoriesIAS 8 Accounting Policies, Changes in Estimates and ErrorsIAS 12 Income TaxesIAS 17 LeasesIAS 18 RevenueIAS 20 Accounting for Government Grants and Disclosure of Government AssistanceIAS 23 Borrowing CostsIAS 36 Impairment of AssetsIAS 37 Provisions, Contingent Liabilities and Contingent AssetsIAS 38 Intangible AssetsIAS 40 Investment PropertyIAS 41 AgricultureIFRIC 12 Service Concession Arrangements


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Subsequently, only the standard number will be referenced, not the name (e.g., IAS 36).

IAS 16 Definitions[IAS 16.6]

These definitions were taken directly from IAS 16.

Carrying amount Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impair-ment losses.

Cost Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognized in accordance with the specific requirements of other IFRSs (e.g., IFRS 2 Share-based Payment).

Depreciable amount Depreciable amount is the cost of an asset or other amount substi-tuted for cost less its residual value.

Depreciation Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Entity-specific value Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between mar-ket participants at the measurement date. (See IFRS 13 Fair Value Measurement.)

Impairment loss An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

Property, plant and equipment

Property, plant and equipment are tangible items that:1. are held for use in the production or supply of goods or services,

for rental to others or for administrative purposes; and2. are expected to be used during more than one period.

Recoverable amount Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use (VIU).

Residual amount The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Useful life Useful life is:1. the period over which an asset is expected to be available for use

by an entity; or2. the number of production or similar units expected to be obtained

from the asset by an entity.


Overview of Key RequirementsThe following chart provides a high-level overview of the key requirements of IAS 16 and accompanying IASB support materials. The intent is not to repeat the standard but to walk the reader through the main requirements in the standard and identify the areas where detailed guidance is given and where complexity in application exists. Areas of greater complexity will be covered in more detail under the Analysis section of this publication.

As mentioned in the Preface, specific “touchstone” references to IAS 16 have been inserted to help the reader navigate the standard. The referencing is not meant to be all-inclusive but rather to give a starting point for further research in the standard itself.

KeY reQUireMenTS OF iaS 16

Scope — iaS 16.2 – .5

Assets Included within the Scope of IAS 16• PP&E, including assets that are carried

at revalued amounts• PP&E used to develop or maintain the

assets shown as excluded from the scope of IAS 16

• measurement of investment property (IAS 40) accounted for using the cost model

• finance leases from the lessee perspective (other than the recognition criteria, which are included in IAS 17)

Assets Excluded from the Scope of IAS 16• PP&E, classified as held for sale (IFRS 5)• PP&E where another standard requires or

permits a different accounting treatment (e.g., investment property (IAS 40))

• intangible assets (IAS 38)• biological assets related to agricultural

activity (e.g., vines used to grow grapes (IAS 41))

• recognition and measurement of explora-tion and evaluation assets (IFRS 6)

• mineral rights and mineral reserves (e.g., oil and natural gas)

recognition — iaS 16.7 – .14

General recognition criteria:1. must be probable that an item of PP&E’s future economic benefits will flow to the entity;

and2. the item of PP&E’s cost can be measured reliably.

Items acquired for safety and environmental reasons, certain spare parts, standby equipment, servicing equipment and major inspection costs are recognized as they enable an entity to obtain future economic benefits from other assets.

Measurement at recognition — iaS 16.15 – .28

An entity considers the IAS 16 recognition criteria for all PP&E costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of PP&E and costs incurred subsequently to add to or replace part of PP&E.

An item of PP&E should be recognized at cost, which is the amount of cash or cash equiva-lents paid, or the fair value of other consideration given, to acquire an asset at the time of its acquisition or construction.

There are specific elements to consider when assessing what contributes to the cost of an item of PP&E, particularly when such an item is self-constructed rather than acquired. IAS 16 provides guidance as to what cost elements should be included and those that should be excluded from the cost determination.


June 2013

KeY reQUireMenTS OF iaS 16

Measurement at recognition — iaS 16.15 – .28 (continued)

IAS 16 provides specific guidance for revenue from incidental operations, self-constructed assets, non-monetary asset exchanges and costs of dismantling, removal and site restoration. Other cost consideration issues included in the analysis section of this publication include:• borrowing costs;• assets acquired using government grants; and• assets transferred from customers.

A subsequent expenditure on an asset is not capitalized if it is not probable that it will create future economic benefit. The costs of day-to-day servicing of an item (i.e., repairs and mainte-nance) are recognized in profit and loss as incurred.

Measurement after recognition — iaS 16.29 – .66

Choice of two accounting policies by class of PP&E:• cost model; or• revaluation model.

Significant guidance is provided for the application of the revaluation model, including:• when it can be used;• determining asset classes;• frequency of revaluations; and• recognition of revaluation increases and decreases.

Each part of PP&E that is significant to the overall cost of an item should be separately depre-ciated, regardless of the accounting policy choice to measure PP&E using the cost model or the revaluation model after recognition.

Depreciation is determined using the cost of an asset less its residual value over the estimated useful life of the asset.

Entities need to review, at least at each annual reporting date, the residual values of their PP&E assets, their estimated useful lives and the depreciation method used.

IAS 16 provides guidance on:• when depreciation of an asset begins;• how to determine an asset’s useful life;• depreciation methods; and• where depreciation is recognized.

An entity applies IAS 36 to determine whether an item of PP&E is impaired.

derecognition — iaS 16.67 – .72

The carrying amount of a PP&E item should be derecognized:1. on disposal; or2. when no future economic benefits are expected from its use or disposal.

The carrying amount of a replaced part should be derecognized upon replacement.

disclosure — iaS 16.73 – .79

Extensive disclosure requirements exist for each class of PP&E, including:1. a reconciliation of the carrying amount at the beginning and end of the period

(including additions, write-downs and depreciation);2. the measurement basis for each class of PP&E (cost or revaluation);3. the depreciation methods used;4. the useful lives or depreciation rate used; and5. specific information when the revaluation method is used.


Analysis of Relevant IssuesThis section expands on certain areas of greater complexity and/or areas requiring significant judgment.

Scope[IAS 16.2 – .5]

Several other standards may be used in conjunction with, or in lieu of, IAS 16 to recognize and measure PP&E.

IAS 16 does not apply to investment property such as land and buildings used to earn rental income or held for capital appreciation purposes. Instead, the provisions of IAS 40 apply. The IAS 16 cost model is relevant in circum-stances where this policy is chosen for subsequent measurement of investment properties.

The following examples look at the relationship between IAS 16 and IAS 40.

appliCaTiOn exaMpleS

relationship between iaS 16 and iaS 40

E xa mpleCompany ABC is in the manufacturing business and owns several plants (buildings and related machinery) across the country. Company ABC uses each of these plants to make products that will ultimately be sold to gener-ate revenue.

These plants are not considered investment property as they are used in the production or supply of goods or services sold in the ordinary course of business. As such, they are recognized under IAS 16 using the requirements in this publication.

E xa mpleCompany DEF is in the real estate business and has invested in several build-ings in many cities across the country. Company DEF derives its revenue from rental income and would recognize a capital gain or loss from the sale of these buildings.

These buildings are considered investment property because they are held to earn rentals and for capital appreciation purposes. As such, they are recognized under IAS 40. Under this standard, Company DEF may choose to measure the buildings after recognition by using either the fair value model or the cost model. Should it choose the cost model, the requirements of IAS 16 would apply.


June 2013

exTraCT 1 — exCerpT FrOM The BriCK lTd. 2012 FinanCial STaTeMenTS

NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES

3.9 Property, plant and equipment (in part)

The Brick Ltd. Notes to the Consolidated Financial Statements December 31, 2012 and December 31, 2011 (thousands of Canadian dollars except for share and per share amounts)

24

it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off income tax assets against income tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its income tax assets and liabilities on a net basis.

3.9 Property, plant and equipment

3.9.1 Recognition and measurement Items of property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures directly attributable to the acquisition of the asset and required to establish the asset in working condition given its intended use. Cost also includes expenditures for dismantling and removing items and restoring the site on which they were located, and borrowing costs on qualifying assets. Purchased software and costs directly related to the purchase and installation of such software are capitalized as a component of related equipment when the software is integral to its functionality. Software that is not considered integral to the functionality of equipment is classified as an intangible asset.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within other income (expense) on the consolidated statements of comprehensive income.

3.9.2 Reclassification to investment property Property, plant and equipment are used in the ordinary course of business in the production or supply of goods or services or for administrative purposes. Investment property is property held to earn rental revenue or for capital appreciation or both. When the use of a property changes from use in the business to investment property, the property’s cost and accumulated depreciation is reclassified from property, plant and equipment to investment property.

The following insight looks at accounting for the right to use land as to whether IAS 16, IAS 17 or IAS 38 applies.

appliCaTiOn inSighTS

purchase of right to use land

Source niFriC

Meeting date September 2012

Insight

The following insights were obtained from “IFRIC — items not taken onto the agenda” report.

issuereason for not adding to the iFriC agenda

In January 2012, the Interpreta-tions Committee received a request to clarify whether the purchase of a right to use land should be accounted for as a:• purchase of property, plant and

equipment;• purchase of an intangible asset;

or• lease of land.

In the fact pattern submitted, the laws and regulations in the juris-diction concerned do not permit entities to own freehold title to land. Instead, entities can purchase the right to exploit or build on land. According to the submitter, there is diversity in practice in the jurisdic-tion on how to account for a land right.

The Interpretations Committee iden-tified characteristics of a lease in the fact pattern considered, in accor-dance with the definition of a lease as defined in IAS 17. The Interpreta-tions Committee noted that a lease could be indefinite via extensions or renewals and, therefore, the exis-tence of an indefinite period does not prevent the ‘right to use’ from qualifying as a lease in accordance with IAS 17. The Interpretations Com-mittee also noted that the lessee has the option to renew the right and that the useful life for depreciation purposes might include renewal periods. Judgement will need to be applied in making the assessment of the appropriate length of the depre-ciation period.

The Interpretations Committee, not-withstanding the preceding observa-tions, noted that the particular fact pattern is specific to one jurisdiction. Consequently, the Interpretations Committee decided not to take this issue onto its agenda.

Details of the issues that have been considered by the IFRIC but not added to its agenda are available online at www.ifrs.org/.


Recognition of Initial and Subsequent Costs[IAS 16.7 – .14]

IAS 16 does not specifically address what items constitute PP&E but provides general recognition guidance. The costs of an item of PP&E are capitalized only if:1. it is probable that future economic benefits from the item will flow to the

entity; and2. the cost can be reliably measured.

The recognition criteria are based on the IASB’s Conceptual Framework for Financial Reporting.

Judgment may be required to determine whether particular costs qualify for recognition as PP&E in certain circumstances, some of which are outlined in the following sub-sections.

Items Acquired for Safety or Environmental Reasons[IAS 16.11]

IAS 16 provides specific guidance for PP&E acquired for safety or environmen-tal reasons. A distinction is made for such PP&E because these assets generally do not have a direct impact on increasing the future economic benefits of any existing piece of PP&E. They may, however, allow an entity to obtain future economic benefits from its other assets in excess of what it might have derived had it not acquired the safety or environmental PP&E.

appliCaTiOn exaMple

items acquired for safety or environmental reasons

E xa mpleCompany ABC operates in the pharmaceutical industry. To run its plants it must abide by several environmental and chemical safety standards. To do so the company has hired several engineers to develop specific processes that will ensure compliance. It has also acquired specified quality control and monitoring equipment.

This equipment is not necessary for the production of goods and services, yet it is important for ensuring compliance with the environmental and chemical safety standards. The process development costs, as well as the equipment, are capitalized under IAS 16.


June 2013

Spare Parts, Standby Equipment and Servicing Equipment[IAS 16.8]

Items such as spare parts, standby equipment and servicing equipment are recognized as PP&E when they meet the definition of PP&E. Otherwise, such items are classified as inventory.

exTraCT 2 — exCerpT FrOM SherriTT inTernaTiOnal COrpOraTiOn 2012

FinanCial STaTeMenTS

NOTE 2 — SUMMARy OF SIGNIFICANT ACCOUNTING POLICIES


Plant, equipment and land (in part)

Sherritt International Corporation 13

2.8 Property, plant and equipmentProperty, plant and equipment include capitalized development and pre-production expenditures that are recorded at cost less

accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the

acquisition of the asset. Also included in the cost of property, plant and equipment are borrowing costs on qualifying capital

projects. These are incurred while construction is in progress and before the commencement of commercial production. Once

construction of an asset is substantially complete and the asset is ready for its intended use, the costs are depreciated.

Plant, equipment and land

Plant, equipment and land includes assets under construction, equipment and processing, refining, power generation and other

manufacturing facilities.

The Corporation recognizes major long-term spare parts and standby equipment as plant, equipment and land when the parts

and equipment are significant and are expected to be used over a period greater than a year, or when the parts and equipment

can be used only in connection with an item of plant, equipment and land. Major inspections and overhauls required at regular

intervals over the useful life of an item of plant, equipment and land are recognized in the carrying amount of the related item if

the inspection or overhaul provides benefit exceeding one year.

Plant and equipment are depreciated using the straight-line method based on estimated useful lives, once the assets are available

for use. Plant and equipment may have components with different useful lives. Depreciation is calculated based on each

individual component’s useful life. New components are capitalized to the extent that they meet the recognition criteria of an

asset. The carrying amount of the replaced component is derecognized, and any gain/loss is included in net earnings (loss). If

the carrying amount of the replaced component is not known, it is estimated based on the cost of the new component less

estimated depreciation. The useful lives of the Corporation’s plant and equipment are as follows:

Buildings and refineries 5 to 40 years

Machinery and equipment 5 to 50 years

Office equipment 3 to 35 years

Fixtures and fittings 3 to 35 years

Assets under construction not depreciated during development period

Mining properties

Mining properties include acquisition costs and development costs related to mines in production, properties under development

and properties held for future development. Ongoing pre-development costs relating to properties held for future development

are expensed as incurred, including property carrying costs, drilling and other exploration costs. Once a project is determined to

be commercially viable, development costs are capitalized. Development costs incurred to access reserves at producing

properties and properties under development are capitalized and are depreciated on a unit-of-production basis over the life of

such reserves. Reserves are measured based on proven and probable reserves.

Oil and gas properties

Oil and gas properties include acquisition costs and development costs related to properties in production, under development

and held for future development. Ongoing pre-development costs relating to properties held for future development are

capitalized as incurred, including exploration costs. Development costs incurred to access reserves at producing properties and

properties under development are capitalized and are depreciated on a unit-of-production basis over the life of such reserves.

Reserves are measured based on proven and probable reserves.

Derecognition

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to

arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference

between the net disposal proceeds and the carrying amount of the item) is included in net earnings (loss) in the period the item

is derecognized.

Capitalization of borrowing costs

Borrowing costs on funds directly attributable to finance the acquisition, construction or production of a qualifying asset are

capitalized until such time as substantially all the activities necessary to prepare the qualifying asset for its intended use or sale

are complete. A qualifying asset is one that takes a substantial period of time to prepare the asset for its intended use. Where

money borrowed specifically to finance a project is invested to earn interest income, the income generated is also capitalized to

reduce the total capitalized borrowing costs.

Subsequent Costs

Repairs and Maintenance[IAS 16.12]

IAS 16 applies the general recognition criteria to subsequent costs incurred to add to or service a previously recognized PP&E item. A subsequent expendi-ture on an asset is capitalized only when it is probable that it will create future economic benefit. The costs of day-to-day servicing of an item are described as being required for the repair and maintenance of an item of PP&E and these costs are recognized in profit and loss as incurred.

Replacement Parts[IAS 16.13]

Costs incurred subsequently in order to add to, replace part of, or service an item are capitalized if they meet the recognition criteria. In such cases, the standard requires an entity to derecognize the carrying amount of the part that has been replaced. This applies whether or not the replaced item has been separately identified and depreciated since acquisition. If the carrying amount of the replaced part cannot be identified, the cost of the replacement, suitably depreciated, can be used to estimate the carrying amount of the part being replaced and derecognized.


exTraCT 3 — exCerpT FrOM air Canada 2012 FinanCial STaTeMenTS

NOTE 2 — BASIS OF PRESENTATION AND SUMMARy OF SIGNIFICANT ACCOUNTING

POLICIES

J) Maintenance and repairs (in part)

2012 Consolidated Financial Statements and Notes

10

H) EMPLOYEE PROFIT SHARING PLANS

The Corporation has employee profit sharing plans. Payments are calculated based on full calendar year results and an expense recorded throughout the year as a charge to Wages, salaries and benefits based on the estimated annual payment under the plan.

I) SHARE-BASED COMPENSATION PLANS

Certain employees of the Corporation participate in Air Canada’s Long-Term Incentive Plan, which provides for the grant of stock options and performance share units (“PSUs”), as further described in Note 14. PSUs are notional share units which are exchangeable, on a one-to-one basis, as determined by the Board of Directors based on factors such as the remaining number of shares authorized for issuance under the Long-Term Incentive Plan as described in Note 14, for Air Canada shares, or the cash equivalent. The options and PSUs granted contain both time and performance based vesting features as those further described in Note 14.

The fair value of stock options with a graded vesting schedule is determined based on different expected lives for the options that vest each year, as it would be if the award were viewed as several separate awards, each with a different vesting date, and it is accounted for over the respective vesting period taking into consideration forfeiture estimates. For a stock option award attributable to an employee who is eligible to retire at the grant date, the fair value of the stock option award is expensed on the grant date. For a stock option award attributable to an employee who will become eligible to retire during the vesting period, the fair value of the stock option award is recognized over the period from the grant date to the date the employee becomes eligible to retire. The Corporation recognizes compensation expense and a corresponding adjustment to Contributed surplus equal to the fair value of the equity instruments granted using the Black-Scholes option pricing model taking into consideration forfeiture estimates. Compensation expense is adjusted for subsequent changes in management’s estimate of the number of options that are expected to vest.

Grants of PSUs are accounted for as cash settled instruments as described in Note 14. Accordingly, the Corporation recognizes compensation expense at fair value on a straight line basis over the applicable vesting period, taking into consideration forfeiture estimates. Compensation expense is adjusted for subsequent changes in the fair value of the PSU and management’s current estimate of the number of PSUs that are expected to vest. The liability related to cash settled PSUs is recorded in Other long-term liabilities. Refer to Note 17 for a description of derivative instruments used by the Corporation to hedge the cash flow exposure to PSUs.

Air Canada also maintains an employee share purchase plan. Under this plan, contributions by the Corporation’s employees are matched to a specific percentage by the Corporation. Employees must remain with the Corporation until March 31 of the subsequent year for vesting of the Corporation’s contributions. These contributions are expensed in Wages, salaries, and benefits expense over the vesting period.

J) MAINTENANCE AND REPAIRS

Maintenance and repair costs for both leased and owned aircraft are charged to Aircraft maintenance as incurred, with the exception of maintenance and repair costs related to return conditions on aircraft under operating lease, which are accrued over the term of the lease, and major maintenance expenditures on owned and finance leased aircraft, which are capitalized as described below in Note 2T.

Maintenance and repair costs related to return conditions on aircraft leases are recorded over the term of the lease for the end of lease maintenance return condition obligations within the Corporation’s operating leases, offset by a prepaid maintenance asset to the extent of any related power-by-the-hour maintenance service agreements or any recoveries under aircraft subleasing arrangements. The provision is recorded within Maintenance provisions using a discount rate taking into account the specific risks of the liability over the remaining term of the lease. Interest accretion on the provision is recorded in Other non-operating expense. For aircraft under operating leases which are subleased to third parties, the expense relating to the provision is presented net on the income statement of the amount recognized for any reimbursement of maintenance cost which is the contractual obligation of the sublessee. The reimbursement is recognized when it is virtually certain that reimbursement will be received when the Corporation settles the obligation. Any changes in the maintenance cost estimate, discount rates, timing of settlement or difference in the actual maintenance cost incurred and the amount of the provision is recorded in Aircraft maintenance in the period.

T) Property and equipment (in part)


13

at the average market price for the period and the difference between the number of shares and the number of shares assumed to be purchased are included in the calculation. The number of shares included with respect to performance-based employee share options and PSUs are treated as contingently issuable shares because their issue is contingent upon satisfying specified conditions in addition to the passage of time. If the specified conditions are met, then the number of shares included is also computed using the treasury stock method unless they are anti-dilutive.

P) CASH AND CASH EQUIVALENTS

Cash and cash equivalents include $218 pertaining to investments with original maturities of three months or less at December 31, 2012 ($356 as at December 31, 2011). Investments include bankers’ acceptances and bankers’ discount notes, which may be liquidated promptly and have original maturities of three months or less.

Q) SHORT-TERM INVESTMENTS

Short-term investments, comprised of bankers’ acceptances and bankers’ discount notes, have original maturities over three months, but not more than one year.

R) RESTRICTED CASH

The Corporation has recorded Restricted cash under Current assets representing funds held in trust by Air Canada Vacations in accordance with regulatory requirements governing advance ticket sales, as well as funds held in escrow accounts relating to Air Canada Vacations credit card booking transactions, recorded under Current liabilities, for certain travel related activities.

Restricted cash with maturities greater than one year from the balance sheet date is recorded in Deposits and other assets. This restricted cash relates to funds on deposit with various financial institutions as collateral for letters of credit and other items.

S) AIRCRAFT FUEL INVENTORY AND SPARE PARTS AND SUPPLIES INVENTORY

Inventories of aircraft fuel and spare parts, other than rotables, and supplies are measured at the lower of cost and net realizable value, with cost being determined using a weighted average formula.

The Corporation did not recognize any write-downs on inventories or reversals of any previous write-downs during the periods presented. Included in Aircraft maintenance is $43 related to spare parts and supplies consumed during the year (2011 – $39).

T) PROPERTY AND EQUIPMENT

Property and equipment is recognized using the cost model. Property under finance leases and the related obligation for future lease payments are initially recorded at an amount equal to the lesser of fair value of the property or equipment and the present value of those lease payments.

The Corporation allocates the amount initially recognized in respect of an item of property and equipment to its significant components and depreciates separately each component. Property and equipment are depreciated to estimated residual values based on the straight-line method over their estimated service lives. Aircraft and flight equipment are componentized into airframe, engine, and cabin interior equipment and modifications. Airframe and engines are depreciated over 20 to 25 years, with 10% to 20% estimated residual values. Cabin interior equipment and modifications are depreciated over the lesser of 5 years or the remaining useful life of the aircraft. Spare engines and related parts (“rotables”) are depreciated over the average remaining useful life of the fleet to which they relate with 10% to 20% estimated residual values. Cabin interior equipment and modifications to aircraft on operating leases are amortized over the term of the lease. Major maintenance of airframes and engines, including replacement spares and parts, labour costs and/or third party maintenance service costs, are capitalized and amortized over the average expected life between major maintenance events. Major maintenance events typically consist of more complex inspections and servicing of the aircraft. All maintenance of fleet assets provided under power-by-the-hour contracts are charged to operating expenses in the income statement as incurred, respectively. Buildings are depreciated on a straight-line basis over their useful lives not exceeding 50 years or the term of any related lease, whichever is less. Leasehold improvements are amortized over the lesser of the lease term or 5 years. Ground and other equipment is depreciated over 3 to 25 years.

exTraCT 4 — exCerpT FrOM SaSKaTChewan TranSpOrTaTiOn COMpanY 2012



c. Property and equipment (in part)

c. Property and equipmentProperty and equipment are recorded at cost less accumulated depreciation and any provisions for impairment. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes materials, services, direct labour and directly attributable overheads.

The costs of maintenance, repairs, renewals or replacements which donot extend productive life are charged to operations as incurred. Thecosts of replacements and improvements which extend productive lifeare capitalized. The cost of replacing part of an item of property andequipment is recognized in the carrying amount of the item if it isprobable that the future economic benefits embodied within the partwill flow to the Company and its cost can be measured reliably. Thecarrying amount of the replaced part is derecognized. The costs ofthe day-to-day servicing of property and equipment are recognized intotal comprehensive loss as incurred.

When property and equipment are disposed of or retired, the related costs and accumulated depreciation are eliminated from the accounts. Any resulting gains or losses are reflected in the statement of comprehensive loss for the period.

d. Non-financial assets held for saleNon-financial assets are classified as held for sale if their carryingamount will be recovered principally through a sale transactionrather than through continuing use. This condition is regarded asmet only when the sale is highly probable and the asset is availablefor immediate sale in its present condition. Management must becommitted to the sale, which should be expected to qualify forrecognition as a completed sale within one year from the date ofclassification.

Non-financial assets classified as held for sale are measured at thelower of their previous carrying amount and fair value less costs tosell.

e. Operating grant revenueOperating grants from CIC are recognized as revenue when received.

f. Capital grant revenueCapital grants related to depreciable property are deferred as receivedand are recognized as revenue over the life of the asset. The

Company recognizes a portion of the capital grant as revenue eachyear equivalent to the amount of depreciation recognized on theassets acquired with the grant funds.

Capital grants related to the acquisition of land and related costs are recognized as a direct increase in retained earnings.

g. Depreciation of property and equipmentDepreciation is recorded on buildings, vehicles, and equipment, on the straight-line basis over the estimated productive life of each asset. Depreciation commences when the property and equipment is ready for its intended use. The estimated useful life of property and equipment is based on manufacturer’s guidance, past experience and future expectations regarding the potential for technical obsolescence. The estimated useful lives are reviewed annually and any changes are applied prospectively.

The estimated useful lives of the major classes of property and equipment are as follows:

Buildings 10 - 50 years Vehicles 5 -15 years Other equipment 3 - 10 years

h. Impairment of non-financial assetsAt each reporting date, the Company reviews the carrying amount ofits non-financial assets to determine whether there is any indicationthat those assets have suffered an impairment loss. If any suchindication exists, the recoverable amount of the asset is estimated inorder to determine the extent, if any, of the impairment loss.

The recoverable amount is the higher of fair value less costs to selland value in use. In assessing value in use, the estimated future cashflows are discounted to their present value using a discount rate thatreflects current market assessments of the time value of money andthe risks specific to the asset for which the estimates of future cashflows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than itscarrying amount, the carrying amount of the asset is reduced to itsrecoverable amount. An impairment loss is recognized immediately inthe statement of comprehensive loss.

Notes to Financial Statements (continued)

55Saskatchewan Transportation Company 2012 Annual Report

Major Inspections[IAS 16.14]

To continue operating, certain items of PP&E may require major inspections (for example: aircrafts, ships, etc.). When such major inspections take place, the costs are recognized as a separate component, if the recognition criteria are satisfied and amortized over the period between scheduled inspections. Once a scheduled inspection has taken place, any remaining carrying amount of the cost of the previous inspection (i.e., the unamortized portion) must be derecognized and the new inspection cost capitalized.


June 2013

exTraCT 5 — exCerpT FrOM BOMBardier inC. 2012 FinanCial STaTeMenTS


Property, plant and equipment (in part)

142

unfunded benefit plans, the benefit obligation, after adjusting for the effects of unrecognized past service costs (credits), is included in retirement benefit liability. Other long-term employee benefits – The accounting method is similar to the method used for defined benefit plans, except that all actuarial gains and losses and past service costs are recognized immediately in income. Other long-term employee benefits are included in other liabilities. Property, plant and equipment PP&E are carried at cost less accumulated amortization and impairment losses. The cost of an item of PP&E includes its purchase price or manufacturing cost, borrowing costs as well as other costs incurred in bringing the asset to its present location and condition. If the cost of certain components of an item of PP&E is significant in relation to the total cost of the item, the total cost is allocated between the various components, which are then separately depreciated over the estimated useful lives of each respective component. The amortization of PP&E is computed on a straight-line basis over the following useful lives: Buildings 5 to 75 years Equipment 2 to 15 years Other 3 to 20 years The amortization method and useful lives are reviewed on a regular basis, at least annually, and changes are accounted for prospectively. The amortization expense and impairments are recorded in cost of sales, SG&A or R&D expenses based on the function of the underlying asset. Amortization of assets under construction begins when the asset is ready for its intended use. When a significant part is replaced or a major inspection or overhaul is performed, its cost is recognized in the carrying amount of the PP&E if the recognition criteria are satisfied, and the carrying amount of the replaced part or previous inspection or overhaul is derecognized. All other repair and maintenance costs are charged to income when incurred. Intangible assets Internally generated intangible assets include development costs (mostly aircraft prototype design and testing costs) and internally developed or modified application software. These costs are capitalized when certain criteria for deferral such as proven technical feasibility are met. The costs of internally generated intangible assets include the cost of materials, direct labour, manufacturing overheads and borrowing costs. Acquired intangible assets include the cost of development activities carried out by vendors for which the Corporation controls the underlying output of the usage of the technology, as well as the cost related to externally acquired licences, patents and trademarks. Intangible assets are recorded at cost less accumulated amortization and impairment losses and include goodwill, aerospace program tooling, as well as other intangible assets such as licenses, patents and trademarks. Other intangible assets are included in other assets.

Measurement at Recognition[IAS 16.15 – .28]

PP&E is initially recognized at cost. Cost is the cash price equivalent or fair value of other consideration given at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as interest over the period of credit unless such interest is capitalized in accordance with IAS 23. Cost includes all expendi-tures directly attributed to bringing the asset to the location and condition nec-essary for it to be capable of operating in the manner intended by management.

IAS 16 provides guidance on the elements of the cost of an item of PP&E. The following illustration summarizes some elements of the cost of PP&E and some costs that are excluded. Note that this is not meant to be a comprehensive list.

illUSTraTiOn 1 — inClUded and exClUded COSTS OF pp&e

included costs excluded costs

• purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates

• costs of site preparation (e.g., surveying, clearing, leveling, grading, and other civil engineering tasks involved in preparing the site for construction)

• initial delivery and handling costs• installation and assembly costs• costs of testing whether the asset is func-

tioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment)

• costs of employee benefits (including share-based payments) arising directly from the acquisition or construction of the PP&E

• professional fees (e.g., legal, architectural, engineering)

• initial estimate of the costs of dismantling and removing the item and restoring the site where it is located to its original con-dition when an obligation to do so exists

• costs of opening a new facility• costs of introducing a new product or

service (including costs of advertising and promotional activities)

• costs of conducting business in a new location or with a new class of customer, including costs of staff training

• administrative and general overhead costs• training costs, including those incurred for

employees who must learn how to oper-ate a new piece of equipment

• costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity

• initial operating losses, such as those incurred while demand for the item’s output builds up

• costs of relocating or reorganizing part or all of an entity’s operations


The following insight looks at costs of testing whether an asset is functioning properly and the treatment of any proceeds before the asset is ready for com-mercial production.


Costs of testing

Source niFriC

Meeting date July 2011

Insight



The Interpretations Committee received a request to clarify the accounting for sales proceeds from testing an asset before it is ready for commercial production. The submitted fact pattern is that of an industrial group with several autonomous plants being available for use at different times. This group is subject to regulation that requires it to identify a ‘commercial produc-tion date’ for the whole industrial complex. The question asked of the Committee is whether the proceeds from those plants already in opera-tion can be offset against the costs of testing those plants that are not yet available for use.

The Committee noted that para-graph 17(e) of IAS 16 applies sepa-rately to each item of property, plant and equipment. It also observed that the ‘commercial production date’ referred to in the submission for the whole complex was a different concept from the ‘available for use’ assessment in paragraph 16(b) of IAS 16. The Committee thinks that the guidance in IAS 16 is sufficient to identify the date at which an item of property, plant and equipment is ‘available for use’ and, therefore, is sufficient to distinguish proceeds that reduce costs of testing an asset from revenue from commercial production.

As a result, the Committee does not expect diversity to arise in practice and therefore decided not to add this issue to its agenda.


Costs of a Self-Constructed Asset[IAS 16.22]

The costs of a self-constructed asset are determined using the same principles as for an acquired asset. They normally include the direct costs of construct-ing the asset (e.g., the purchase price of raw materials including transportation, handling and other direct costs, and direct labour costs).


June 2013

If an entity makes similar assets for sale in the normal course of business, the costs of the asset are usually the same as the costs of constructing an asset for sale. Therefore, any internal profits are excluded.

IAS 16 specifically excludes the cost of abnormal amounts of wasted material, labour or other resources incurred in self-constructing an asset.

exTraCT 6 — exCerpT FrOM rOgerS COMMUniCaTiOnS inC. 2012 FinanCial

STaTeMenTS


(r) Property, plant and equipment: (in part)

(i) Recognition and measurement: (in part)

NO

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S T

O C

ON

SO

LIDA

TE

D FIN

AN

CIA

L ST

AT

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EN

TS

obligation. Actuarial gains and losses are determined at the endof the year in connection with the valuation of the plans and arerecognized in OCI and retained earnings.

The Company uses the following methods and assumptions forpension accounting associated with its defined benefit plans:

(a) the cost of pensions is actuarially determined and takesinto account the expected rates of salary increases, for instance, as the basis for future benefit increases;

(b) for the purpose of calculating the expected return onplan assets, those assets are valued at fair value; and

(c) past service costs from plan amendments are expensedimmediately in the consolidated statements of income to the extent that they are already vested. Unvested past service costs are deferred and amortized on a straight-line basis over the average remaining vesting period. Contributions to defined contribution plans are recognized as an employee benefit expense in the statement of income in the periods during which related services are rendered by employees.

Contributions to defined contribution plans are recognized as an employee benefit expense in the consolidated statements of income in the periods during which related services are rendered by employees.

(ii) Termination benefits:Termination benefits are recognized as an expense when theCompany is committed without realistic possibility ofwithdrawal, to a formal detailed plan to terminate employmentbefore the normal retirement date.

(r) Property, plant and equipment:(i) Recognition and measurement:Items of PP&E are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures that are directly attributable to theacquisition of the asset. The cost of self-constructed assetsincludes the cost of materials and direct labour, any other costsdirectly attributable to bringing the assets to a workingcondition for their intended use, the costs of dismantling andremoving the items and restoring the site on which they arelocated, and borrowing costs on qualifying assets. Thedetermination of directly attributable costs involves significantmanagement estimates. These estimates include certain directlabour and direct costs associated with the acquisition,construction, development or betterment of the Company’snetwork are capitalized to PP&E, and interest costs which arecapitalized during construction and development of certainPP&E.

The cost of new cable subscriber installation costs are capitalized to cable and wireless network and is depreciated over the useful lives of the related assets. Costs of other cable connections and disconnections are expensed, except for direct incremental installation costs related to reconnect Cable customers, which are deferred to the extent of reconnect installation revenues.

Gains and losses on disposal of an item of PP&E are determinedby comparing the proceeds from disposal with the carryingamount of PP&E, and are recognized within other income in theconsolidated statements of income.

(ii) Depreciation:Depreciation is charged to the consolidated statements of income over the estimated useful lives of the PP&E as follows:Asset Basis Estimated useful life

Buildings Diminishing balance 5 to 25 yearsCable and wireless network Straight-line 3 to 30 yearsComputer equipment and software Straight-line 4 to 10 yearsCustomer premise equipment Straight-line 3 to 5 yearsLeasehold improvements Straight-line Over shorter of estimated

useful life and lease termEquipment and vehicles Diminishing balance 3 to 20 years

Components of an item of PP&E may have different useful lives.The selection of depreciation methods, rates, and useful livesrequires significant estimates that take into account industrytrends and company-specific factors. Depreciation methods, ratesand residual values are reviewed at least annually or when thereare changes in circumstances, and revised if the current method,estimated useful life or residual value is different from thatestimated previously. The effect of such changes is recognized inthe consolidated statements of income prospectively.

Development expenditures are capitalized if they meet thecriteria for recognition as an asset. The assets are amortized overtheir expected useful lives once they are available for use.Research expenditures, as well as maintenance and trainingcosts, are expensed as incurred.

(s) Acquired program rights:Program rights represent contractual rights acquired from thirdparties to broadcast television programs and are carried at cost lessaccumulated amortization. Program rights and the related liabilities

are recorded on the consolidated statements of financial positionwhen the licence period begins and the program is available for useand is amortized to other external purchases in the consolidatedstatements of income over the expected exhibition period, whichranges from one to five years. If programs are not scheduled, therelated program rights are considered impaired and written off.Otherwise, they are subject to non-financial asset impairment testingas intangible assets with finite useful lives. Program rights for multi-year sports programming arrangements are expensed as incurred,when the games are aired.

(t) Goodwill and intangible assets:(i) Goodwill:Goodwill is measured if the fair value of considerationtransferred, including the recognized amount of any non-controlling interest of the acquiree, is greater than the fair valueof the identifiable net assets acquired. If the excess is negative,the difference is recognized immediately in the consolidatedstatements of income.

2012 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 91

Borrowing Costs[IAS 23.1 and .5]

IAS 23 establishes criteria for the recognition of borrowing costs as an element of the carrying amount of a qualifying asset. A qualifying asset is defined in IAS 23 as “an asset that necessarily takes a substantial period of time to get ready for its intended use or sale”. IAS 23 does not provide guidance on what constitutes a substantial period of time. This is a matter of judgment.

An entity must capitalize borrowing costs for qualifying assets that are directly attributable to the acquisition, construction or production of the qualifying asset.


exTraCT 7 — exCerpT FrOM pOTaSh COrpOraTiOn OF SaSKaTChewan inC.

2012 FinanCial STaTeMenTS

NOTE 5 — PROPERTy, PLANT AND EqUIPMENT

Accounting Policies (in part)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In millions of US dollars except as otherwise noted

Note 4 Inventories continued

SUPPORTING INFORMATION

Inventories at December 31 were comprised of:

2012 2011

Finished products $ 417 $ 395Intermediate products 82 98Raw materials 91 91Materials and supplies 172 147

$ 762 $ 731

The following items affected cost of goods sold during the year:

2012 2011 2010

Expensed inventories $ 3,659 $ 3,653 $ 3,087Reserves, reversals and writedowns of inventories 8 8 5

$ 3,667 $ 3,661 $ 3,092

The carrying amount of inventory recorded at net realizable value was $23 at December 31, 2012 (2011 – $7), with the remaining inventory recorded at cost.

NOTE 5 PROPERTY, PLANT AND EQUIPMENT

ACCOUNTING POLICIESProperty, plant and equipment (which include certain mine development costs, pre-stripping costs and assets under construction) are carried at cost (which includes all expenditures directly attributable to bringing the asset to the location and installing it in working condition for its intended use) less accumulated depreciation and any recognized impairment loss. Income or expenses derived from the necessity to bring an asset under construction to the location and condition necessary to be capable of operating in the manner intended is recognized as part of the cost of the asset. The cost of property, plant and equipment is reduced by the amount of related investment tax credits to which the company is entitled. Costs of additions, betterments, renewals and borrowings during construction are capitalized. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to ready for their intended use are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. The capitalization rate is based on the weighted average interest rate on all of the company’s outstanding third-party debt. All other borrowing costs are charged through finance costs in theperiod in which they are incurred. Each component of an item of property, plant and equipment with a cost that is significant in relation to the item’s total cost is depreciated separately. When the cost of replacing part of an item of property, plant and equipment is capitalized, the carrying amount of thereplaced part is derecognized. The cost of major inspections and overhauls is

capitalized and depreciated over the period until the next major inspection or

overhaul. Maintenance and repair expenditures that do not improve or extend

productive life are expensed in the period incurred.

Any gain or loss arising on the disposal or retirement of an item of property,

plant and equipment is determined as the difference between the sale

proceeds and the carrying amount of the asset, and is recognized in

operating income.

ACCOUNTING ESTIMATES AND JUDGMENTSDetermination of which costs are directly attributable (e.g., labor, overhead) and when income or expenses derived from an asset under construction is recognized as part of the cost of the asset, are matters of judgment. Capitalization of costs ceases when an item is substantially complete and inthe location and condition necessary for it to be capable of operating in the manner intended by management. Determining when an asset, or a portion thereof, meets these criteria requires consideration of the circumstances andthe industry in which it is to be operated, normally predetermined by management with reference to such factors as productive capacity. This determination is a matter of judgment that can be complex and subject to differing interpretations and views, particularly when significant capital projects contain multiple phases over an extended period of time. When an item of property, plant and equipment comprises individual components for which different depreciation methods or rates are appropriate, judgment is used in determining the appropriate level of componentization. Distinguishing major inspections and overhauls from repairs and maintenance, and determining the appropriate life over which such costs should be amortized is a matter of judgment.

Certain mining and milling assets are depreciated using the units-of-

production method based on the shorter of estimates of reserves or service

lives. Pre-stripping costs are depreciated on a units-of-production basis over

the ore mined from the mineable acreage stripped. Land is not depreciated.

114 POTASHCORP 2012 ANNUAL INTEGRATED REPORT

Cessation of Cost Recognition[IAS 16.20]

It should be noted that costs are no longer capitalized once the item is in the location and condition necessary for it to be capable of operating in the man-ner intended by management. This means that IAS 16 prohibits the recognition of relocation and reorganization costs, costs incurred after the asset is capable of being used and initial operating losses.

Income and Related Expenses of Incidental Operations[IAS 16.21]

Incidental income derived from operating PP&E prior to its substantial comple-tion and readiness for use is recognized as part of the cost of the asset pro-vided it is necessary to bring the asset to its intended use.

Income and related expenses of incidental operations that are not necessary to bring an asset to the condition and location for its intended use, or that are incurred after the asset is already in the location and condition necessary for operating as intended, are recognized in profit or loss.

appliCaTiOn exaMple

incidental income

E xa mpleCompany ABC is about to construct a condominium project near a golf course. Before construction begins, the land on which the project will be situated is being used as a place where golfers may practice prior to begin-ning their games. The golf company must pay a rental fee to Company ABC for the use of this land.

Revenues derived by ABC from the golf company are recognized in the period when earned as they are not required to bring the asset to the condi-tion and location for its intended use.


June 2013

Assets Acquired Using Government Grants[IAS 16.28 and IAS 20.24]

For many industries, the acquisition of certain assets is made possible by gov-ernment grants. Government grants may take the form of subsidies, forgivable loans or other similar mechanisms. IAS 20 prescribes the following treatment for government grants related to PP&E:• recognize the grant as deferred income to be recognized in profit or loss

on a systematic basis over the useful life of the asset; or• deduct the grant in calculating the carrying amount of the asset. The

grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.

exTraCT 8 — exCerpT FrOM CenOvUS energY inC. 2012 FinanCial

STaTeMenTS


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS All amounts in $ millions, unless otherwise indicated For the year ended December 31, 2012

Cenovus Energy Inc. 18 Consolidated Financial Statements

An impairment loss on a financial asset carried at amortized cost is calculated as the difference between the amortized cost and the present value of the future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. Impairment losses on financial assets carried at amortized cost are reversed through net earnings in subsequent periods if the amount of the loss decreases. Q) Borrowing Costs

Borrowing costs are recognized as an expense in the period in which they are incurred unless there is a qualifying asset. Borrowing costs directly associated with the acquisition, construction or production of a qualifying asset are capitalized when a substantial period of time is required to make the asset ready for its intended use. Capitalization of borrowing costs ceases when the asset is in the location and condition necessary for its intended use. R) Government Grants

Government grants are recognized at fair value when there is reasonable assurance that the grants will be received and the Company will comply with the conditions of the grant. Grants related to assets are recorded as a reduction of the asset’s carrying value and are depreciated over the useful life of the asset. Grants related to income are treated as a reduction of the related expense in the Consolidated Statements of Earnings and Comprehensive Income. S) Leases

Leases in which substantially all of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

Leases where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases within property, plant and equipment. T) Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method of accounting in which the identifiable assets acquired, liabilities assumed and any non-controlling interest are recognized and measured at their fair value at the date of acquisition. Any excess of the purchase price plus any non-controlling interest over the fair value of the net assets acquired is recognized as goodwill. Any deficiency of the purchase price over the fair value of the net assets acquired is credited to net earnings.

At acquisition, goodwill is allocated to each of the CGUs to which it relates. Subsequent measurement of goodwill is at cost less any accumulated impairment losses. U) Provisions

General

A provision is recognized if, as a result of a past event, the Company has a present obligation, legal or constructive, that can be estimated reliably, and it is more likely than not that an outflow of economic benefits will be required to settle the obligation. Where applicable, provisions are determined by discounting the expected future cash flows at a pre-tax credit-adjusted rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as a finance cost in the Consolidated Statements of Earnings and Comprehensive Income. Decommissioning Liabilities

Decommissioning liabilities include those legal or constructive obligations where the Company will be required to retire tangible long-lived assets such as producing well sites, crude oil and natural gas processing facilities and refining facilities. The amount recognized is the present value of estimated future expenditures required to settle the obligation using a credit-adjusted risk-free rate. A corresponding asset equal to the initial estimate of the liability is capitalized as part of the cost of the related long-lived asset. Changes in the estimated liability resulting from revisions to expected timing or future decommissioning costs are recognized as a change in the decommissioning liability and the related long-lived asset. The amount capitalized in property, plant and equipment is depreciated over the useful life of the related asset. Increases in the decommissioning liabilities resulting from the passage of time are recognized as a finance cost in the Consolidated Statements of Earnings and Comprehensive Income.

Actual expenditures incurred are charged against the accumulated liability.

Assets Held under a Finance Lease[IAS 16.4 and .27]

The initial measurement of cost for PP&E acquired under the form of a finance lease is determined under the provisions of IAS 17. Once a leased asset held under a finance lease has been recognized, its subsequent measurement follows the requirements in IAS 16 (e.g., use of the cost model or revaluation model and depreciation).

Non-Monetary Transactions[IAS 16.24 – .26]

Where an entity acquires an item of PP&E in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets, measurement at fair value is prescribed unless the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.


An entity determines whether an exchange transaction has commercial sub-stance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:• the configuration (i.e., risk, timing and amount) of the cash flows of the

asset received differs from the configuration of the cash flows of the asset transferred; or

• the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a result of the exchange; and

• the difference in the points above is significant relative to the fair value of the assets exchanged.

Recall that entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

For the purpose of determining commercial substance, the entity-specific value of the portion of the entity’s operations affected by the transaction should reflect post-tax cash flows.

exTraCT 9 — exCerpT FrOM The greaT Canadian gaMing COrpOraTiOn 2012


NOTE 3 — CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

GREAT CANADIAN GAMING CORPORATION Notes to the Consolidated Financial Statements For the Years Ended December 31, 2012 and 2011 (Expressed in millions of Canadian dollars, except for per share information)

Notes to the Consolidated Financial Statements Page 18

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued) Fair value of net assets acquired in business combinations

The cost of an acquired business (“purchase price”) is assigned to the identifiable tangible and intangible assets purchased and liabilities assumed on the basis of their fair values at the date of acquisition. The identification of assets purchased and liabilities assumed and the valuation thereof is specialized and judgmental. Where appropriate, the Company engages business valuators to assist in the valuation of tangible and intangible assets acquired. Any excess of purchase price over the fair value of the identifiable tangible and intangible assets purchased and liabilities assumed is allocated to goodwill.

When a business combination involves contingent consideration, an amount equal to the fair value of

the contingent consideration is recorded as a liability at the time of acquisition. The key assumptions utilized in determining fair value may include probabilities associated with the occurrence of specified future events, financial projections of the acquired business, the timing of future cash flows, and the appropriate discount rate.

Fair value of assets acquired in business transactions with non-monetary consideration The Company measures the fair value of assets acquired in business transactions with non-monetary

consideration at the fair value of the asset given up or the fair value of the asset received, whichever is more reliably measurable. Measurement of fair value is based on an analysis of pertinent information that may include third-party asset appraisals, market values evidenced from similar transactions, and discounted cash flows.

Equity-settled share-based compensation

The Company estimates the cost of equity-settled share-based compensation using the Black-Scholes option pricing model. The model takes into account an estimate of the expected life of the option, the current price of the underlying common share, the expected volatility, an estimate of future dividends on the underlying common share, the risk-free rate of return expected for an instrument with a term equal to the expected life of the option, and the expected forfeiture rate.

Income taxes

Deferred tax assets and liabilities are due to temporary differences between the carrying amount for accounting purposes and the tax basis of certain assets and liabilities, as well as undeducted tax losses. Estimation is required for the timing of the reversal of these temporary differences and the tax rate applied. The carrying amounts of assets and liabilities are based on amounts recorded in the financial statements and are subject to the accounting estimates inherent in those balances. The tax basis of assets and liabilities and the amount of undeducted tax losses are based on the applicable income tax legislation, regulations and interpretations. The timing of the reversal of the temporary differences and the timing of deduction of tax losses are based on estimations of the Company’s future financial results.

Changes in the expected operating results, enacted tax rates, legislation or regulations, and the

Company’s interpretations of income tax legislation will result in adjustments to the expectations of future timing difference reversals and may require material deferred tax adjustments.

Transfers of Assets from Customers [IFRIC 18]In some industries, suppliers of goods or services require (or allow) their cus-tomers to contribute PP&E items (or cash to construct or acquire PP&E items) to support the customers’ ongoing access to a supply of goods or services. Examples include PP&E to connect to utilities such as gas, electricity or water and PP&E provided to an information outsourcing provider. The IFRS Inter-pretations Committee clarified the accounting treatment for how the entity receiving the PP&E recognizes the receipt of the assets (or cash specifically designated for the acquisition or construction of PP&E items) from its custom-ers (IFRIC 18).

Essentially, that transfer is treated as a non-monetary transaction. Therefore, if a PP&E item received from a customer meets the definition of an asset (i.e., the item is a resource the entity controls as a result of past events and from which


June 2013

future economic benefits are expected to flow), that item should be measured at fair value as a non-monetary transaction as described above. If, however, the customer continues to exercise control after ownership of the item is trans-ferred, the item cannot be recognized as an asset.

It is important to note that government grants in the form of transfers of resources to an entity in return for past or future compliance with certain con-ditions relating to the entity’s operating activities are excluded from IFRIC 18 and should be accounted for under IAS 20. In addition, IFRIC 18 does not apply to agreements covering the transfer of infrastructure used in public-to-private service concession arrangements and falling within the scope of IFRIC 12.

The following insight looks at the issue of how IFRIC 18 applies to customer transfer of assets within the scope of IFRIC 18. Note the date of the NIFRIC. Even though some NIFRICs are older, they still provide some insight into how the standards are interpreted by the standard setters.


applicability of iFriC 18 to the customer

Source niFriC

Meeting date July 2009

Insight



The IFRIC received a request to pro-vide guidance on how the customer should account for a transfer of assets that is in the scope of IFRIC 18 for the recipient. The IFRIC noted that IFRIC 18 addresses only the accounting by the recipient of the transferred assets.

The IFRIC also noted that the accounting by customers transfer-ring assets should be consistent with the principles in IFRIC 18 that, in a normal trading transaction, transfers of assets include exchanges of other goods, services or both. The IFRIC noted that other IFRSs provide rele-vant guidance for accounting for the goods or services received or given up in the exchange transaction.

Therefore, the IFRIC concluded that the agenda criteria were not met mainly because IFRSs already provide relevant guidance, and it did not expect divergent interpretations in practice. Therefore, the IFRIC decided not to add this issue to its agenda.



Subsequent Measurement[IAS 16.29 – .66]

IAS 16 permits entities to choose between two accounting policy models for subsequent measurement of PP&E:• the cost model; or• the revaluation model.

Cost Model[IAS 16.30]

Under the cost model, once an item of PP&E is recognized as an asset, it is carried at its cost less any accumulated depreciation and any accumulated impairment losses. This is the traditional method of accounting for PP&E.

exTraCT 10 — exCerpT FrOM The BriCK lTd. 2012 FinanCial STaTeMenTS


The Brick Ltd. Notes to the Consolidated Financial Statements December 31, 2012 and December 31, 2011 (thousands of Canadian dollars except for share and per share amounts)

24

it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off income tax assets against income tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its income tax assets and liabilities on a net basis.


3.9.1 Recognition and measurement Items of property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures directly attributable to the acquisition of the asset and required to establish the asset in working condition given its intended use. Cost also includes expenditures for dismantling and removing items and restoring the site on which they were located, and borrowing costs on qualifying assets. Purchased software and costs directly related to the purchase and installation of such software are capitalized as a component of related equipment when the software is integral to its functionality. Software that is not considered integral to the functionality of equipment is classified as an intangible asset.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within other income (expense) on the consolidated statements of comprehensive income.

3.9.2 Reclassification to investment property Property, plant and equipment are used in the ordinary course of business in the production or supply of goods or services or for administrative purposes. Investment property is property held to earn rental revenue or for capital appreciation or both. When the use of a property changes from use in the business to investment property, the property’s cost and accumulated depreciation is reclassified from property, plant and equipment to investment property.

Revaluation Model[IAS 16.31 – .42]

Once a model is selected, it applies to an entire class of PP&E. Thus, if an item of PP&E is revalued, the entire class of PP&E to which that asset belongs has to be revalued to prevent selective revaluation. A class of PP&E is defined as a grouping of assets of a similar nature and use in an entity’s operations. The following illustration includes examples of separate asset classes identified in IAS 16.


June 2013

illUSTraTiOn 2 — appliCaTiOn OF The revalUaTiOn MOdel

examples of separate asset classes

Land

Land and buildings

Machinery

Ships

Aircraft

Motor vehicles

Furniture and fixtures

Office equipment

Judgment must be applied in the determination of PP&E asset classes. Each entity should analyze its specific operations to determine those classes. Asset classes may be narrower than those identified above. As an example, in the airline industry, engines or flight equipment may be considered specific asset classes rather than the more all-encompassing notion of “aircraft.”

The revaluation model is available to classes of PP&E whose fair value can be reliably measured. If the fair value cannot be reliably measured, the cost model must be selected.

Under the revaluation model, a class of PP&E is carried at its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transac-tion between market participants at the measurement date. Fair value is deter-mined from a market perspective by applying the requirements of IFRS 13.

The revaluation model is generally used by companies having assets that tend to appreciate in value, such as buildings and land not accounted for under IAS 40. In particular, this model is informative for land assets since land is not depreciated and revaluation would reflect appreciation in value over time — although recent economic trends have shown that asset appreciation is not a guarantee.

As a matter of interest, few companies in Europe, Australia, Canada and other areas use the revaluation model and those that do limit its use to a few selected classes.


Selecting and Deselecting the Revaluation Model Policy[IAS 8.14, .17, .19, .22 – .25 and .29]

The change in accounting policy from the cost model to the revaluation model should be treated as a change in accounting policy in accordance with IAS 16 rather than IAS 8. The change is treated as a revaluation during the period the revaluation model is first applied and, therefore, prior periods are not adjusted. This means it is not necessary to restate prior periods for the carrying value and depreciation and impairment charges for the revalued items. This is an exception from the IAS 8 requirement to account for voluntary changes in accounting policies retrospectively.

Deselecting the revaluation model is more problematic. IAS 8 permits a vol-untary change in accounting policy only if the change results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows. The revaluation model is thought to pro-vide information more relevant and reliable than that obtained under the cost model; therefore, it may be difficult to assert that the change results in more relevant information. However, circumstances such as a new limitation in deter-mining a reliable fair value could force such a reversion. This could mean that the revaluation does not result in reliable information.

Thus, an entity choosing to revert back to the cost model would have to justify that choice under IAS 8 and apply the change retrospectively (i.e., as if it had always been applied), unless it is impracticable to do so. This means the entity would have to restate the carrying values, including accumulated depreciation and accumulated impairments and the effects on profit or loss and equity, as if the revaluation model had not been adopted as an accounting policy choice. The entity would also apply the IAS 8 disclosure requirements for a voluntary change in accounting policy.

Frequency of Revaluations[IAS 16.31 and .34]

Companies should revalue their PP&E with sufficient regularity to ensure the carrying amount does not differ materially from what they would determine using fair value at the end of the reporting period.


June 2013

The frequency of revaluations depends on the changes in the fair values of the PP&E items. If there is a material difference between the fair value of an asset and its carrying amount, it needs to be revalued. There is no requirement to conduct an annual revaluation of assets; if, however, the value of an asset fluctuates a great deal, it should be revalued annually. For example, where asset values change very little, they can possibly be revalued every three-to-five years.

The items within a class of PP&E are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements that are a mixture of costs and fair value.

Accounting for a Revaluation[IAS 16.35 and .39 – .40]

When a PP&E item is revalued, any accumulated depreciation at the date of the revaluation is treated in one of two ways:1. It is restated proportionately with the change in the gross carrying amount

of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. This method is often used when an asset is revalued by applying an index to determine its replacement cost (see IFRS 13).

2. It is eliminated against the gross carrying amount of the asset and the net amount is restated to the asset’s revalued amount. This method is often used for buildings.

Note: Refer to the Standards Update section in this publication. A proposed amendment to IAS 16 would change the guidance in (1) above and state that accumulated depreciation is computed as the difference between the gross and net carrying amounts. The amendment will also clarify that the determination of accumulated depreciation does not depend on the selection of the valuation technique.

These two methods will result in the same net balance sheet amount for PP&E although the gross amounts reported (i.e., cost and accumulated depreciation) will differ. The effect on the income statement and the other comprehensive income will be the same.


The following illustration indicates the recognition of a change from a revaluation.

illUSTraTiOn 3 — reCOgniTiOn OF revalUaTiOn ChangeS

initial revaluation increase • included in other comprehensive income (OCI) and accu-mulated in equity under the heading “revaluation surplus”.

initial revaluation decrease • included in profit or loss.

Subsequent revaluation increase

• included in OCI and increases revaluation surplus unless it reverses a revaluation decrease of the same asset previ-ously recognized in profit or loss.

• recognition in profit or loss is limited to the previously recognized decreases in that asset.

• no net gain should be recognized in income over the use-ful life of a revalued asset.

Subsequent revaluation decrease

• included in profit or loss unless any credit balance exists in the revaluation surplus for that asset. In this case, the decrease is recognized in OCI and the revaluation surplus to the extent that any credit balance exists for that asset.

• carrying a negative revaluation reserve for any asset is not permitted.

The following three examples illustrate the calculation of a revaluation. Note that in the first two examples, the impact of depreciation has been ignored to simplify the calculations. The impact of depreciation is demonstrated in the third example. The following abbreviations are used in these examples:

CA = carrying amount FV = fair value OCI = other comprehensive income

appliCaTiOn exaMple

initial revaluation is an increase in carrying amount

E xa mpleThis is a simplified example, excluding depreciation, to demonstrate recogni-tion of revaluation adjustments.

ABC Ltd. has elected to use the revaluation model to account for its building. There is only one building in the asset class. The building cost is $500,000.

revaluation Fv

difference between Fv and Ca

recognized in OCi

recognized in profit or loss

#1 $600,000 +$100,000 +$100,000 0

#2 $400,000 -$200,000 -$100,000 -$100,000

#3 $750,000 +$350,000 +$250,000 +$100,000


June 2013

appliCaTiOn exaMple

initial revaluation is an increase in carrying amount

At the first revaluation, a $100,000 increase in the carrying amount of the building and a cor-responding increase in OCI is recognized. A revaluation surplus of $100,000 is included as a separate line item in equity.

At the second revaluation, the carrying amount of the building is decreased by $200,000, which represents the difference between the carrying amount of the building before revalu-ation ($600,000) and the revalued amount (fair value of $400,000). Because the second revaluation decreases the carrying amount, the decrease is applied first to the revaluation surplus balance. A reversal of $100,000 will be recognized in OCI and a loss of $100,000 will be recognized in profit or loss.

For the third revaluation, the carrying amount of the building has increased $350,000, which represents the difference between the carrying amount of the building before the revalua-tion ($400,000) and the revalued amount (fair value of $750,000). An amount of $100,000 is recognized in profit or loss to reverse the loss recognized in the previous revaluation. The remaining $250,000 is recognized in OCI. A revaluation surplus of $250,000 is included as a separate line item in equity.

appliCaTiOn exaMple

initial revaluation is a decrease in carrying amount

E xa mpleThis is a simplified example, excluding depreciation, to demonstrate recogni-tion of revaluation adjustments.

ABC Ltd. has elected the revaluation model to account for its building. There is only one building in the asset class. The building cost is $500,000.

revaluation Fv

difference between Fv and Ca

recognized in OCi

recognized in profit or loss

#1 $400,000 -$100,000 0 -$100,000

#2 $700,000 +$300,000 +$200,000 +$100,000

#3 $350,000 -$350,000 -$200,000 -$150,000

At the first revaluation, a $100,000 decrease in the carrying amount of the building and a corresponding charge to profit or loss is recognized (there is no revaluation surplus related this asset).

At the second revaluation, the carrying amount of the building is increased by $300,000, which represents the difference between the carrying amount of the building before revalua-tion ($400,000) and the revalued amount (fair value of $700,000). The $100,000 loss recog-nized for the previous revaluation is reversed, with the difference of $200,000 recognized in OCI. A revaluation surplus of $200,000 is included as a separate line item in equity.

For the third revaluation, the carrying amount of the building has decreased to $350,000, which represents the difference between the carrying amount of the building before the revaluation ($700,000) and the revalued amount (fair value of $350,000). The decrease is applied first to the revaluation surplus balance. A reversal of $200,000 will be recognized in OCI and a loss of $150,000 will be recognized in profit or loss.


appliCaTiOn exaMple

initial revaluation is a decrease in carrying amount

E xa mpleThis example includes the impact of revaluation adjustments and the effect on depreciation.

ABC Ltd. has elected the revaluation model to account for its building. There is only one building in the asset class. The building cost is $1 million and is being depreciated on a straight-line basis over its estimated useful life of 20 years.

Year

Ca at the end of the year

Fv at the end of the year

difference Ca — Fa

depreciation for the year (in profit or loss)

revaluation recognized in OCi

revaluation recognized in profit or loss

1 $950,000 $950,000 0 $50,000 0 0

2 $900,000 $900,000 0 $50,000 0 0

3 $850,000 $850,000 0 $50,000 0 0

4 $800,000 $600,000 -$200,000 $50,000 0 -$200,000

5 $562,500 ($600,000 – $37,500)

$562,500 0 $37,500 ($600,000 /16)

0 0

6 $525,000 $525,000 0 $37,500 0 0

7 $487,500 $700,000 +$212,500 $37,500 $50,000 $162,500

In years one through three the carrying amount approximates fair value. Depreciation is $50,000 yearly ($1,000,000 / 20 years).

At the end of the fourth year, when the carrying amount is $800,000, a revaluation results in a revaluation adjustment of -$200,000 recognized in profit or loss. Depreciation is $50,000 for year four but decreases to $37,500 for year five based on the carrying amount of $600,000 at the beginning of the year and an estimated remaining useful life of 16 years.

At the end of the seventh year, when the carrying amount is $487,500, the fair value is $700,000. This results in a revaluation adjustment of $212,500. To determine the amount to recognize in profit or loss, the loss previously recognized in profit or loss and the reduction in depreciation as a result of the revaluation adjustment need to be considered. The portion of the revaluation adjustment recognized in profit or loss is equal to $200,000 (the reversal of the previous revaluation loss) less an adjustment for the extra depreciation that would have been recognized in profit or loss without the revaluation adjustment (($50,000 – $37,500) × 3 years = $37,500). Thus $162,500 is a credit to profit or loss and the remainder is recognized in OCI ($212,5000 – $162,500 = $50,000). A revaluation surplus of $50,000 is included as a separate line item in equity. This represents the excess of the carrying amount using the revaluation method ($700,000) over what it would have been using the cost method, with no revaluations recognized (($1,000,000 – ($50,000 × 7 years) = $750,000).


June 2013

Transferring the Revaluation Surplus to Retained Earnings[IAS 16.41]

A portion of the revaluation surplus related to the depreciated asset may be realized during the useful life of the asset by transferring an amount equivalent to the difference between the depreciation calculated on the asset’s revalued carrying amount and the depreciation calculated on its original cost from the revaluation surplus to retained earnings. These transfers do not go through profit or loss. Alternatively, the whole of the surplus can be transferred to retained earnings when the asset is retired or disposed of.

Costs of Dismantling, Removal and Site Restoration (Decommissioning Costs) and Changes to These Costs[IAS 16.16 and .18, IAS 37.10, .14 and .36 and IFRIC 1]

Many entities have obligations to dismantle, remove and restore items of PP&E. Under IAS 16, the cost of an item of PP&E includes the costs an entity incurs for dismantling, removing the item and restoring the site on which it is located, either at acquisition or after having used the asset during a particular period for purposes other than to produce inventories during that period.

IAS 37 provides guidance on when these costs are recognized and how the amount is determined. A provision for decommissioning, site restoration and similar liabilities is recognized when:1. the entity has a present obligation (legal or constructive1) as a result of a

past event;2. an outflow of resources to settle the obligation is probable; and3. a reliable estimate of the obligation can be made.

Obligations for dismantling, removal or site restoration are measured at man-agement’s best estimate of the expenditure required to settle the obligation at the end of the reporting period. A corresponding cost is added to the carrying amount of the PP&E item.

IFRIC 1 was developed to provide guidance on changes in the measurement of an existing decommissioning or restoration obligation triggered by a change in the estimated timing or amount of the outflow of resources required to settle the obligation, or in the discount rate.

1 A constructive obligation is an obligation derived from an entity’s actions where an established pattern of past practice, published policy or a sufficiently specific current statement indicating to other parties that it will accept certain responsibilities have created a valid expectation on the part of other parties that the entity will discharge those responsibilities.


The following illustration summarizes the guidance in IFRIC 1.

illUSTraTiOn 4 — iFriC 1 — ChangeS in exiSTing deCOMMiSSiOning, reSTOra-

TiOn and SiMilar liaBiliTieS

Cost model used for pp&e revaluation model used for pp&e

The change is added to, or deducted from, the costs of the related asset.• The amount deducted should not exceed

the carrying amount of the asset. Any excess should be recognized in profit or loss.

• An increase in the carrying amount of the asset as a result of an increase in the obli-gation may trigger an asset impairment test. If indicators of impairment exist, the asset should be tested in accordance with IAS 36 by comparing the carrying amount of the asset to its recoverable amount (i.e., higher of fair value less costs of disposal and VIU.

The change is recognized either in the revalu-ation surplus or deficit previously recognized.• A decrease in the obligation is recognized

in OCI and increases the revaluation sur-plus in equity unless it reverses a revalua-tion deficit recognized previously in profit or loss. If, so, this portion is recognized in profit or loss.

• If the liability decrease exceeds the carry-ing amount that would have been recog-nized had the asset been measured using the cost model, the excess is recognized in profit or loss.

• An increase in the obligation is recog-nized in profit or loss unless there is a credit balance in the revaluation surplus related to the asset. If so, the increase is recognized in OCI to the extent of the credit balance in the revaluation surplus in equity.

• The change in the obligation may be an indication that the asset has to be revalued. If a revaluation is necessary, the entire class has to be revalued.

Once the related asset has reached the end of its useful life, all subsequent changes in the liability must be recognized in profit or loss as they occur. Moreover, the unwinding of the discount should be recognized in profit or loss as a finance cost. Under IAS 23, capitalization is not permitted.


June 2013

exTraCT 11 — exCerpT FrOM hUSKY energY inC. 2012 FinanCial STaTeMenTS


80 Husky Energy Inc. 2012 Annual Report

Consolidated Financial Statements 17

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses recognized with respect to CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the CGU or group of CGUs on a pro rata basis. Impairment losses arerecognized in depletion, depreciation, amortization and impairment in the consolidated statements of income.

Impairment losses recognized for other assets in prior years are assessed at the end of each reporting period for any indications that the impairment condition has decreased or no longer exists. An impairment loss is reversed only to the extent that the carrying amount of the asset or CGU does not exceed the carrying amount that would have been determined, net of depletion, depreciation and amortization, if no impairment loss had been recognized.

i) Asset Retirement Obligations (“ARO”)

A liability is recognized for future legal or constructive retirement obligations associated with the Company's assets. The Company has significant obligations to remove tangible assets and restore land after operations cease and the Company retires or relinquishes the asset. The retirement of Upstream and Downstream assets consists primarily of plugging and abandoning wells, removing and disposing of surface and subsea plant and equipment and facilities, and restoring land to a state required by regulation or contract. The amount recognized is the net present value of the estimated future expenditures determined in accordance with local conditions, current technology and current regulatory requirements. The obligation is calculated using the current estimated costs to retire the asset inflated to the estimated retirement date and then discounted using a credit-adjusted risk free discount rate. The liability is recorded in the period in which an obligation arises with a corresponding increase to the carrying value of the related asset. The liability is progressively accreted over time as the effect of discounting unwinds, creating an expense recognized in finance expenses. The costs capitalized to the related assets are amortized in a manner consistent with the depletion, depreciation and amortization of the underlying assets. Actual retirement expenditures are charged against the accumulated liability as incurred.

Liabilities for ARO are adjusted every reporting period for changes in estimates. These adjustments are accounted for as a change in the corresponding capitalized cost, except where a reduction in the provision is greater than the undepreciated capitalized cost of the related assets, in which case the capitalized cost is reduced to nil and the remaining adjustment is recognized in net earnings. In the case of closed sites, changes to estimated costs are recognized immediately in net earnings. Changes to the amount of capitalized costs will result in an adjustment to future depletion, depreciation and amortization, and finance expenses.

Estimating the ARO requires significant judgment as restoration technologies and costs are constantly changing, as are regulatory, political, environmental and safety considerations. Inherent in the calculation of the ARO are numerous assumptions including the ultimate settlement amounts, future third-party pricing, inflation factors, risk free discount rates, credit risk, timing of settlement and changes in the legal, regulatory, environmental and political environments. Future revisions to these assumptions may result in material changes to the ARO liability. Adjustments to the estimated amounts and timing of future ARO cash flows are a regular occurrence in light of the significant judgments and estimates involved.

j) Legal and Other Contingent Matters

Provisions and liabilities for legal and other contingent matters are recognized in the period when the circumstance becomes probable that a future cash outflow resulting from past operations or events will occur and the amount of the cash outflow can be reasonably estimated. The timing of recognition and measurement of the provision requires the application of judgment to existing facts and circumstances, which can be subject to change, and the carrying amounts of provisions and liabilities are reviewed regularly and adjusted accordingly. The Company is required to both determine whether a loss is probable based on judgment and interpretation of laws and regulations, and determine that the loss can be reasonably estimated. When a loss is recognized, it is charged to net earnings. The Company continually monitors known and potential contingent matters and makes appropriate provisions when warranted by the circumstances present.

k) Share Capital

Preferred shares are classified as equity since they are cancellable and redeemable only at the Company's option and dividends are discretionary and payable only if declared by the Board of Directors. Incremental costs directly attributable to the issuance of shares and stock options are recognized as a deduction from equity, net of tax. Common share dividends are paid out in common shares or in cash, and preferred share dividends are paid in cash. Both common and preferred share dividends are recognized asdistributions within equity.

Depreciation[IAS 16.6 and .43 – .62]

IAS 16 requires an annual charge to income for depreciation based on an allocation of the cost of an asset, less its residual value, over its useful life, including any idle period or period in which the asset is retired from active use. Depreciation may be nil, however, if a usage method is applied and there is no production from the asset.

The mechanics of depreciation are the same for the cost and revaluation model in that “cost” or “revalued amount,” less any residual value, is amortized over the useful life of an asset. Although, as we have seen in the application exam-ples in the section on the application of the revaluation model, the mechanics of calculating the depreciation expense under the revaluation model may pose some difficulties, the determination of depreciation remains fundamentally the same under both models.

A depreciation charge for each period is recognized in profit or loss unless an asset’s future economic benefits are absorbed in producing other assets, in which case the depreciation charge is included in the carrying amount of those assets. For example, the depreciation of a manufacturing plant and equipment is included in the costs of conversion of inventories.


Component Accounting[IAS 16.43 – .47]

IAS 16 requires the application of component accounting. The main objective of component accounting is to ensure the costs of an asset’s significant com-ponents are depreciated over their appropriate useful lives, rather than the useful life of the asset taken as a whole. Note that a separate component can be either physical (e.g., a motor on an aircraft) or nonphysical (e.g., a major overhaul or inspection).

The allocation of cost to components requires judgment and careful analysis of facts and circumstances. There is no prescribed methodology for determining significant components.

One could, however, consider the use of a valuator to determine values of assets and components. Alternatively, insurance appraisal reports may have components listed for significant assets, which could be useful in determin-ing the value of significant components. Where an entity has several locations (e.g., a company with relatively homogeneous manufacturing plants around the world) it might consider using a pilot-project approach. Under a pilot project, the company would pick one plant for evaluation by valuators, engineers or other appropriate personnel. Their findings would then be applied to the other plants in the organization and produce results not materially different from what might have been obtained had all individual plants been evaluated on their own. One must recall that the components must be significant to the overall asset. Therefore, the asset should not have a significant number of components.

Each component part of a PP&E item costing a significant amount in relation to the item’s total cost is depreciated separately. When, however, significant parts of a PP&E item have the same useful lives and depreciation method, they may be grouped together for depreciation purposes.

As an example, a building may have several components (e.g., the roof, door frames, walls, floors, elevators, escalators, etc.), but only some of these com-ponents may be considered significant. In addition, the walls, doorframes and floors may all have the same useful lives and can be grouped together.


June 2013

appliCaTiOn exaMple

allocation of cost to components

E xa mpleABC Ltd. acquires a building. An insurance valuator proposes that the build-ing has two significant components (i.e., the roof and the elevators) repre-senting 15% and 18% respectively of the relative fair value of the building. The building was acquired for $750,000 and its useful life was determined to be 50 years. The roof and elevators have an estimated useful life of 15 years and 25 years respectively. The building is measured using the cost model. For simplicity, residual value is deemed to be nil.

The components are depreciated as follows:

Component Carrying amount Useful life depreciation

Roof (15%) $112,500 15 years $7,500

Elevator (18%) $135,000 25 years $5,400

Building (67%) $502,500 50 years $10,050

Total $750,000 $22,950

If the building is depreciated as a single unit rather than as component parts, depreciation would be $15,000 ($750,000 / 50 years), which is relatively lower than $22,950 above.

exTraCT 12 — exCerpT FrOM air Canada 2012 FinanCial STaTeMenTS

NOTE 2 — BASIS OF PRESENTATION AND SUMMARy OF SIGNIFICANT ACCOUNTING

POLICIES

T) Property and equipment (in part)


13






R) RESTRICTED CASH










13






R) RESTRICTED CASH










Residual Value[IAS 16.6 and .51 – .54]

IAS 16.6 provides a detailed definition of the residual value of an asset. Resid-ual value should reflect the amount an entity would currently receive from the disposal of an asset after deducting estimated costs of disposal if it were already of the age and in the condition expected at the end of its useful life.

IAS 16 requires an annual review of the residual value of an asset. If a change is required, it should be accounted for as a change in an accounting estimate (unless the change reflects a correction of an error).

exTraCT 13 — exCerpT FrOM weSTJeT airlineS lTd. 2012 FinanCial

STaTeMenTS

NOTE 1 — STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

(j) Property and equipment (in part)

Notes to Consolidated Financial Statements For the years ended December 31, 2012 and 2011 (Stated in thousands of Canadian dollars, except share and per share amounts)

WestJet Year End 2012 │ 11

1. Statement of significant accounting policies (continued)

(i) Inventory

Inventories are valued at the lower of cost and net realizable value, with cost being determined on a first-in, first-out basis and a specific item basis depending on the nature of the inventory. The Corporation’s inventory balance consists of aircraft fuel, de-icing fluid, retail merchandise and aircraft expendables.

(j) Property and equipment

Property and equipment is stated at cost and depreciated to its estimated residual value. Assets under finance leases are initially recorded at the present value of minimum lease payments at the inception of the lease. Expected useful lives and depreciation methods are reviewed annually.

Asset class Basis Rate Aircraft, net of estimated residual value Straight-line 20 years Engine, airframe and landing gear overhaul Straight-line 8 to 15 years Live satellite television equipment Straight-line 10 years/Term of lease Ground property and equipment Straight-line 5 to 25 years Spare engines and rotables, net of estimated residual value Straight-line 20 years Buildings Straight-line 40 years Leasehold improvements Straight-line 5 years/Term of lease Assets under finance leases Straight-line Term of lease

Estimated residual values of the Corporation’s aircraft range between $4,000 and $6,000 per aircraft. Spare engines have a residual value equal to 10% of the original purchase price. Residual values, where applicable, are reviewed annually against prevailing market rates at the consolidated statement of financial position date.

Major overhaul expenditures are capitalized and depreciated over the expected life between overhauls. All other costs relating to the maintenance of fleet assets are charged to the consolidated statement of earnings on consumption or as incurred.

Rotable assets are purchased, depreciated and disposed of on a pooled basis. When parts are purchased, the cost is added to the pool and depreciated over its useful life of 20 years. The cost to repair rotable parts is recognized in maintenance expense as incurred.

(k) Intangible assets

Included in intangible assets are costs related to software, landing rights and other. Software and landing rights are carried at cost less accumulated amortization and are amortized on a straight-line basis over their respective useful lives of five and 20 years. Expected useful lives and amortization methods are reviewed annually.

(l) Impairment

Property and equipment and intangible assets are grouped into cash generating units (CGUs) and reviewed for impairment when events or changes in circumstances indicate that the carrying value of the CGU may not be recoverable. When events or circumstances indicate that the carrying amount of the CGU may not be recoverable, the long-lived assets are tested for recoverability by comparing the recoverable amounts, defined as the greater of the CGU’s fair value less cost to sell or value-in-use, with the carrying amount of the CGU. Fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties, in an arm’s length transaction. Value-in-use is defined as the present value of the cash flows expected from the future use or eventual sale of the asset at the end of its useful life. If the carrying value of the CGU exceeds the greater of the fair value less cost to sell and value-in-use, an impairment loss is recognized in net earnings for the difference. Impairment losses may subsequently be reversed and recognized in earnings due to changes in events and circumstances, but only to the extent of the original carrying amount of the asset, net of depreciation or amortization, had the original impairment not been recognized.

Depreciation is recognized as long as the asset’s carrying amount exceeds its residual value. In circumstances where the residual value of an asset increases to an amount greater than its carrying amount, the depreciation charge is zero until the residual value falls below the asset’s carrying amount.

Useful Life[IAS 16.6, .50 – .51 and .56 – .59]

The useful life of an asset is:• the period over which an asset is expected to be available for use by an

entity; or• the number of production or similar units an entity expects to obtain from

the asset.

The useful life of an asset is defined in terms of the asset’s expected utility to the entity and may sometimes be shorter than its economic life.

The estimation of the useful life of an asset is a matter of judgment based on the experience of the entity with similar assets. The illustration below lists fac-tors included in IAS 16 that should be considered in determining the expected useful life.


June 2013

illUSTraTiOn 5 — deTerMining The expeCTed USeFUl liFe OF an iTeM

OF pp&e

examples of factors to consider in determining an asset’s expected useful life include:

• expected usage assessed by reference to the asset’s expected capacity or physical output.

• expected physical wear and tear, which depends on operational factors such as the num-ber of shifts for which the asset is to be used, the repair and maintenance program and the care and maintenance of the asset while idle.

• technical or commercial obsolescence arising from changes or improvements in produc-tion, or from a change in the market demand for the product or service output of the asset.

• legal or similar limits on the use of the asset, such as the expiry dates of related leases.

Land and building are separate assets and accounted for separately. With some exceptions (e.g., quarries and landfill sites) land has an unlimited useful life and is not depreciated. In cases where land has a limited useful life, it is depreciated in a manner that reflects the benefits to be derived from it. If the cost of the land includes costs of site dismantlement, removal and restoration costs, these costs are depreciated over the period of benefits obtained by incurring those costs.

IAS 16 requires the useful life of an asset be reviewed on an annual basis; any changes are accounted for as a change in an accounting estimate.

exTraCT 14 — exCerpT FrOM newalTa COrpOraTiOn 2012 FinanCial

STaTeMenTS


C) Property, plant and equipment (in part)

61NEWALTA | AR 12

C) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, less accumulated amortization and impairment. Amortization rates

are calculated to amortize the costs, net of residual value, over the assets’ estimated useful lives. Significant parts of

property, plant and equipment that have different depreciable lives are amortized separately.

Plant and equipment is principally depreciated at rates of 5-10% of the declining balance (buildings, site improvements,

tanks and mobile equipment) or from 5-14 years straight line (vehicles, computer hardware and software and leasehold

improvements), depending on the expected life of the asset. Some equipment is depreciated based on utilization rates.

The utilization rate is determined by dividing the cost of the asset by the estimated future hours of service. Residual

values, up to 20% of original cost, may be established for buildings, site improvements, and tanks. These residual values

are not depreciated. The estimated useful lives, residual values and amortization methods are reviewed at the end of

each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Landfill assets represent the costs of landfill available space, including original acquisition cost, incurred landfill

construction and development costs, including gas collection systems installed during the operating life of the site,

and capitalized landfill closure and post-closure costs. The cost of landfill assets, together with projected landfill

construction and development costs for permitted capacity, is amortized on a per-unit basis as landfill space is

consumed. Management annually updates landfill capacity estimates, based on survey information provided by

independent engineers, and projected landfill construction and development costs. The impact on annual amortization

expense of changes in estimated capacity and construction costs is accounted for prospectively.

D) PERMITS AND OTHER INTANGIBLE ASSETS

Permits and other intangible assets are stated at cost, less accumulated amortization and impairment, and consist

of certain production processes, trademarks, permits and agreements which are amortized over the period of the

contractual benefit of 8 to 20 years on a straight line basis. Certain permits are deemed to have indefinite lives and

therefore are not amortized. There are nominal fees to renew these permits provided that Newalta remains in good

standing with regulatory authorities.

E) LEASES

Lessee

All of the Corporation’s leases are classified as operating leases and the leased assets are not recognized in the

Corporation’s consolidated balance sheets. Payments made under operating leases are recognized in profit or loss on

a straight-line basis over the term of the lease unless another systematic basis is representative of the time pattern of

the user’s benefit, including any rent-free periods. Lease incentives are recognized as an integral part of the total lease

expense, over the term of the lease.

Leases where the Corporation assumes substantially all the risks and rewards of ownership would be classified as

finance leases and the corresponding asset would be classified as property, plant and equipment and the liability as

obligations under finance lease.

Leases may include additional payments for real estate taxes, maintenance and insurance. These amounts are expensed

in the period to which they relate.

Lessor

Assets subject to operating leases are recognized and classified according to the nature of the asset. Initial direct

costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset

and expensed over the lease term on the same basis as the lease income. The depreciation policy for leased assets is

consistent with the depreciation policy for similar owned assets.


The following viewpoint is industry specific and is included to illustrate some of the judgment involved in the determination of the useful life of an asset.

appliCaTiOn viewpOinTS

Depletion of a Mine in the Production Phase: Useful Life of the Mine

Viewpoints

The Mining Industry Force on IFRSs has issued a Viewpoint discussing some of the accounting considerations for determining the useful life of a mine.

The Viewpoint Series is available online at www.cpacanada.ca/ifrs


Useful life of leasehold improvements

Source IFRS Discussion group

Insight

The following insights were obtained from a publicly available IFRS Discus-sion Group report.

Meeting date April 19, 2012

Topic IAS 16: Useful Life of Leasehold Improvements

insights IAS 16 Property, Plant and Equipment requires the depreciable amount of an asset to be allocated on a systematic basis over its useful life.

In determining a “lease term”, IAS 17 Leases requires that a renewal option not be reflected unless it is “reasonably certain” that the option will be exercised. The issue considered by the Group was whether the lease term represents the useful life for leasehold improvements under IAS 16 when the lessee is not reasonably certain it will exercise an option to extend a lease.

Fact Pattern:• A lessee enters into an operating lease for an office property that has:

o an initial term of five years; and o an option for the lessee to extend the lease for a further five years

at market rates.• Upon commencement of the lease term, the lessee:

o spends $2 million on an immovable leasehold improvement specific to the property, that has an economic life of seven years; and

o expects to exercise the extension option, but is not reasonably certain it will do so.

Should the useful life of the leasehold improvements be the shorter of the lease term and the asset’s economic life (i.e., five years) (View A) or the asset’s expected economic life (i.e., seven years) (View B)?

Proponents of View A refer to paragraph 56(d) of IAS 16 and the definition of lease term under IAS 17, arguing that a consistent approach to amortiza-tion should be used.

Proponents of View B give more weight to paragraphs 56(a) and 57 of IAS 16, focussing on the expected use of the asset.


June 2013


Useful life of leasehold improvements

The Group’s Discussion

Group members noted that it is difficult to understand how the lessee in this fact pattern can expect to exercise the extension option but not be reason-ably certain it will do so. As a result, Group members questioned how often the fact pattern would occur in practice.

Several Group members observed that there is a relatively unclear distinc-tion between expected and reasonably certain. They expressed the view that expected and reasonably certain do not represent different thresholds.

Group members also noted that, from a practical perspective, management would align the lease term with the economic life of significant leasehold improvements and, in most cases, a financial statement preparer would arrive at compatible approaches.

Group members made several other observations, including that there may be an economic incentive to renew the lease and that only IAS 16 applies to the amortization of the asset (i.e., IAS 17 does not apply).

The Group agreed that this issue should not be brought to the attention of the IFRS Interpretations Committee because the issue is not expected to arise in practice frequently.

Written reports and audio webcasts of the Group’s discussion for each agenda topic are avail-able online at www.frascanada.ca.

Depreciation Start Date[IAS 16.55]

Depreciation of an asset begins when the asset is available for use. This means that it should be in the location and condition necessary for it to be capable of operating in the manner intended by management.

The starting date for depreciating a major spare part or standby equipment classified as PP&E is generally the date it is available for use.

appliCaTiOn exaMple

depreciation of standby equipment

E xa mpleABC Ltd. owns a specialized piece of equipment powered by a generator 24 hours a day, all year round. ABC also has another generator installed and ready for use should the operating generator break down.

The standby generator is classified as PP&E when it meets the definition of PP&E (i.e., held for use in the production or supply of goods and services, for rental to others, or for administrative purposes, and expected to be used during more than one period (IAS 16.8)). Since amortization should begin when the standby generator is “available for use,” it should be amortized as soon as it begins serving as a backup for the operating generator.

The method of amortization will depend on what is considered a systematic basis over its useful life. If the generator’s useful life is based on the passage of time, it will be amortized along with the one being used; if it is based on usage, there may be no measured amount of amortization until it is actually put into use.


Depreciation End Date[IAS 16.55]

IAS 16 indicates depreciation of an asset ceases at the earlier of the date the asset is classified as held for sale (or included in a disposal group clas-sified as held for sale), in accordance with IFRS 5, and the date the asset is derecognized.

Depreciation Method[IAS 16.60 – .61]

IAS 16 specifies that the depreciation method must closely reflect the way an entity consumes an asset’s future economic benefits over the asset’s estimated useful life.

An annual review of the depreciation method applied to an item of PP&E is required.

Acceptable Depreciation Methods[IAS 16.62]

IAS 16 provides a variety of depreciation methods for allocating the deprecia-ble amount of an asset on a systematic basis over its useful life, such as:• the straight-line method (constant charge over the asset’s useful life);• the diminishing balance method (decreasing charge over the asset’s useful

life); and• the units of production method (charge based on the expected use or out-

put of the asset).

The standard is not prescriptive. Entities should choose the method that most closely reflects their expected pattern of consumption of the asset’s future economic benefits. That method should be applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits.

As noted in the Standards Update section of this publication, in December 2012 the IASB issued an ED proposing a narrow-scope amendment to IAS 16. The objective of the proposed amendment is to ensure preparers do not use revenue-based methods to calculate charges for the depreciation or amortiza-tion of items of PP&E or intangible assets. The proposed amendment also pro-vides further guidance in the application of the diminishing balance method.


June 2013

appliCaTiOn STaTiSTiCS

CICA Survey of Selected Accounting Policies of Junior Oil and Gas Entities — January 2013

StatisticsIn practice, oil and gas properties are depleted by analogy to IAS 16 and IAS 38. The unit of production method is most commonly used to deplete such assets. In a survey of select junior oil and gas company financial state-ments, 90% disclosed the use of proved and probable reserves for applica-tion of this method and 7% disclosed the use of proved reserves.

The publication is available online at www.cpacanada.ca/ifrs

The following two insights look at methods of depreciation. Note the date of the NIFRICs. Even though some NIFRICs are older, they still provide some insight into how the standards are interpreted by the standard setters.


depreciation of fixed assets

Source niFriC

Meeting date May 2004

Insight



The Committee considered a poten-tial issue as to whether the produc-tion method of depreciation could be used under IAS 16 Property, Plant and Equipment if an asset is not consumed (worn down) directly in relation to the level of use. For example, if a road with a greater capacity than current demands is built, should depreciation in the initial period be lower than in later periods, if usage is expected to increase over the life of the asset?

The IFRIC agreed that this was fore-most a conceptual area and decided not to add it to the IFRIC agenda. However, the IFRIC recommended that this topic be considered by the Board as part of the Concepts project.




iaS 16 and iaS 17: depreciation of assets leased under operating leases

Source niFriC

Meeting date november 2004

Insight



The IFRIC considered whether inter-est methods of depreciation were permissible under IFRSs. Use of such methods would permit an entity to depreciate an asset that is not a receivable in much the same way as if it were a receivable, with the result that the depreciated amount of the asset reflects the present value of future net cash flow expected from it.

The IFRIC noted that, while deliber-ating certain issues related to service concessions, it had considered whether it would be appropriate to use an interest method of deprecia-tion. In that discussion, it concluded that using an interest method of depreciation was not appropriate. The IFRIC concluded that there was nothing unique about assets leased under operating leases in service concessions that would cause it to reach a different conclusion about the use of interest methods of depreciation. It noted that the Basis for Conclusions in the future Interpretations on service conces-sions would include a discussion of its conclusions on interest methods of depreciation.


Changes in Depreciation Method[IAS 16.61]

If there is a significant change in the expected pattern of consumption of an asset’s future economic benefits, the depreciation method should be adjusted to reflect the changed pattern. This change would be recognized as a change in accounting estimate (unless the change is to correct an error), in line with IAS 8.


June 2013

exTraCT 15 — exCerpT FrOM SearS Canada inC. 2012 FinanCial STaTeMenTS



56

All intercompany balances and transactions, income and expenses arising from intercompany transactions are eliminated in the preparation of the consolidated financial statements.

2.5 Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with maturities of 90 days or less at the date of purchase. Cash and cash equivalents are considered to be restricted when they are subject to contingent rights of a third party customer, vendor, government agency or financial institution.

2.6 Short-term investments

Short-term investments include investments with maturities between 91 to 364 days from the date of purchase.

2.7 Inventories

Inventories are measured at the lower of cost and net realizable value. Cost is determined using the weighted average cost method, based on individual items. The cost is comprised of the purchase price, plus the costs incurred in bringing the inventory to its present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs to sell. Rebates and allowances received from vendors are recognized as a reduction to the cost of inventory, unless the rebates clearly relate to the reimbursement of specific expenses. A provision for shrinkage and obsolescence is calculated based on historical experience. All inventories consist of finished goods.


Property, plant and equipment are measured at cost or deemed cost less accumulated depreciation and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes site preparation costs, design and engineering fees, freight (only on initial freight costs incurred between the vendor and the Company), installation expenses and provincial sales tax (Saskatchewan, Manitoba and Prince Edward Island), and is net of any vendor subsidies or reimbursements. An allocation of general and specific incremental interest charges for major construction projects is also included in the cost of related assets.

When the significant parts of an item of property, plant and equipment have varying useful lives, they are accounted for as separate components of property, plant and equipment. Depreciation is calculated based on the depreciable amount of the asset or significant component thereof, if applicable, which is the cost of the asset or significant component less its residual value. Depreciation is recognized using the straight-line method for each significant component of an item of property, plant and equipment and is recorded in “Selling, administrative and other expenses” in the Consolidated Statements of Net Earnings (Loss) and Comprehensive Income (Loss) . The estimated useful lives are 2 to 13 years for equipment and fixtures and 10 to 50 years for buildings and building improvements. The estimated useful lives, residual values and depreciation methods for property, plant and equipment are reviewed annually and adjusted, if appropriate, with the effect of any changes in estimates accounted for on a prospective basis.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease, unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the proceeds from sale or the cost of retirement and the carrying amount of the asset, and is recognized in the Consolidated Statements of Net Earnings (Loss) and Comprehensive Income (Loss).

For a discussion on the impairment of tangible assets refer to Note 2.11. Property, plant and equipment are reviewed at the end of each reporting period to determine whether there is an indicator of impairment.

2.9 Investment property

The Company’s investment property consists of vacant land which is not currently used in its operations. Investment property is measured at its deemed cost less accumulated impairment losses.

The fair values of the investment property is estimated using observable data based on the current cost of acquiring comparable properties within the market area and the capitalization of the property’s anticipated revenue. The Company engages independent qualified third parties to conduct appraisals of its investment property.

Impairment and Compensation for Impairment[IAS 16.63 – .66]

An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is defined in IAS 16 as the higher of an asset’s fair value less costs to sell or its VIU.

To determine whether a PP&E item is impaired, an entity applies IAS 36. This standard provides guidance as to when to assess impairment, how to deter-mine the recoverable amount and when to recognize an impairment loss. It also provides guidance on reversal of impairment losses. When there is a subsequent increase in the recoverable amount of an impaired asset, the previously recognized impairment loss is reversed. For PP&E assets carried at cost, the amount of the recovery is limited to the carrying value of the asset that would have been determined (net of depreciation) had no impairment loss been recognized for the asset in prior years. This requirement means that an entity must be able to reconstruct the pre-impairment carrying amount of the asset.

exTraCT 16 — exCerpT FrOM rOYal BanK OF Canada 2012 FinanCial

STaTeMenTS

NOTE 2 — SUMMARy OF SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES

AND JUDGMENTS

Premises and equipment (in part)

GoodwillGoodwill is allocated to cash-generating units or groups of cash-generating units (CGU) for the purpose of impairment testing, which isundertaken at the lowest level at which goodwill is monitored for internal management purposes. Impairment testing is performed annually as atAugust 1, or more frequently if there are indications that impairment may have occurred, by comparing the recoverable amount of a CGU with itscarrying amount. The recoverable amount of a CGU is the higher of its value in use and its fair value less costs to sell. Value in use is the presentvalue of the expected future cash flows from a CGU.

Significant judgment is involved in estimating the model inputs used to determine the recoverable amount of our CGU, in particular futurecash flows, discount rates and terminal growth rates, due to the uncertainty in the timing and amount of cash flows and the forward-lookingnature of these inputs. Future cash flows are based on financial plans agreed by management which are estimated based on forecast results,business initiatives, planned capital investments and returns to shareholders. Discount rates are based on the bank-wide cost of capital,adjusted for CGU-specific risks and currency exposure as reflected by differences in historical and expected inflation. CGU-specific risks includecountry risk, business/operational risk, geographic risk (including political risk, devaluation risk, and government regulation), currency risk, andprice risk (including product pricing risk and inflation). Terminal growth rates reflect the gross domestic product and inflation for the countrieswithin which the CGU operates. Changes in these assumptions may impact the amount of impairment loss recognized in Non-interest expense.

The carrying amount of a CGU includes the carrying amount of assets and goodwill allocated to the CGU. If the recoverable amount is lessthan the carrying value, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to theother non-financial assets of the CGU proportionately based on the carrying amount of each asset. Any impairment loss is charged to income inthe period in which the impairment is identified. Goodwill is stated at cost less accumulated impairment losses. Subsequent reversals ofgoodwill impairment are prohibited.

Upon disposal of a portion of a CGU, the carrying amount of goodwill relating to the portion of the CGU sold is included in the determinationof gains or losses on disposal. The carrying amount is determined based on the relative fair value of the disposed portion to the total CGU.

Other intangiblesIntangible assets are recognized separately from goodwill when they are separable or arise from contractual or other legal rights, and their fairvalue can be measured reliably. Intangible assets with a finite life are amortized on a straight-line basis over their estimated useful lives,generally from 10 to 20 years, and are assessed for indicators of impairment at each reporting period.

If there is an indication that a finite-life intangible asset may be impaired, an impairment test is performed by comparing the carryingamount of the intangible asset to its recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, weestimate the recoverable amount of the CGU to which the asset belongs. If the recoverable amount of the asset (or CGU) is less than its carryingamount, the carrying amount of the intangible asset is written down to its recoverable amount as an impairment loss.

An impairment loss recognized previously is reversed if there is a change in the estimates used to determine the recoverable amount of theasset (or CGU) since the last impairment loss was recognized. If an impairment loss is subsequently reversed, the carrying amount of the asset(or CGU) is revised to the lower of its recoverable amount and the carrying amount that would have been determined (net of amortization) hadthere been no prior impairment. Due to the subjective nature of these estimates, significant judgment is required in determining the useful livesand recoverable amounts of our intangible assets, and assessing whether certain events or circumstances constitute objective evidence ofimpairment. To make these estimates, management relies on sales projections, allocated costs and risk-adjusted discount rates that take intoconsideration the market environment and our business objectives. Changes in these assumptions may impact the amount of impairment lossrecognized in Non-interest expense. We do not have any intangible assets with indefinite lives.

OtherTranslation of foreign currenciesMonetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates prevailing at the balance sheetdate. Foreign exchange gains and losses resulting from the translation and settlement of these items are recognized in Non-interest income inthe Consolidated Statements of Income.

Non-monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars at historical rates.Non-monetary financial assets classified as AFS securities, such as equity instruments, that are measured at fair value are translated intoCanadian dollars at rates prevailing at the balance sheet date, and the resulting foreign exchange gains and losses are recorded in Othercomponents of equity until the asset is sold or becomes impaired.

Assets and liabilities of our foreign operations with functional currencies other than Canadian dollars are translated into Canadian dollars atrates prevailing at the balance sheet date, and income and expenses of these foreign operations are translated at average rates of exchange forthe reporting period.

Unrealized gains or losses arising as a result of the translation of our foreign operations along with the effective portion of related hedgesare reported in Other components of equity on an after-tax basis. Upon disposal or partial disposal of a foreign operation, an appropriate portionof the accumulated net translation gains or losses is included in Non-interest income.

Premises and equipmentPremises and equipment includes land, buildings, leasehold improvements, computer equipment, furniture, fixtures and other equipment, and are stated at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use, and the initial estimate of any disposal costs. Depreciation is recorded principally on a straight-line basis over the estimated useful lives of the assets, which are 25 to 50 years for buildings, 3 to 10 years for computer equipment, and 7 to 10 years for furniture, fixtures and other equipment. The amortization period for leasehold improvements is the lesser of the useful life of the leasehold improvements or the lease term plus the first renewal period, if reasonably assured of renewal, up to a maximum of 10 years. Land is not depreciated. Gains and losses on disposal are recorded in Non-interest income.

Premises and equipment are assessed for indicators of impairment at each reporting period. If there is an indication that an asset may beimpaired, an impairment test is performed by comparing the asset’s carrying amount to its recoverable amount. Where it is not possible toestimate the recoverable amount of an individual asset, we estimate the recoverable amount of the CGU to which the asset belongs and test forimpairment at the CGU level. An impairment charge is recorded to the extent the recoverable amount of an asset (or CGU), which is the higher offair value less costs to sell and value in use, is less than its carrying amount. Value in use is the present value of the future cash flows expectedto be derived from the asset (or CGU).

After the recognition of impairment, the depreciation charge is adjusted in future periods to reflect the asset’s revised carrying amount. If animpairment is later reversed, the carrying amount of the asset is revised to the lower of the asset’s recoverable amount and the carrying amountthat would have been determined (net of depreciation) had there been no prior impairment loss. The depreciation charge in future periods isadjusted to reflect the revised carrying amount.

Consolidated Financial Statements Royal Bank of Canada: Annual Report 2012 105


Compensation for Impairment[IAS 16.65]

If an entity receives third-party compensation for PP&E items that were impaired, lost or given up, the compensation is recognized in profit or loss when receivable.

Derecognition of PP&E[IAS 16.67 – .72]

The carrying amount of an item of PP&E is derecognized:• on disposal; or• when no future economic benefits are expected from its use or disposal.

The disposal date is the date at which the criteria for recognizing revenue from the sale of goods in IAS 18 are met. IAS 17 applies to disposal by a sale and leaseback.

An entity is required to derecognize the carrying amount of a part of a PP&E item if that part has been replaced and the entity has included the cost of the replacement part in the carrying amount of the item. This is required even if the part was not a significant component and was, therefore, not depreciated separately.

When a PP&E item is disposed of, the gain or loss on disposal is included in profit or loss unless IAS 17 requires otherwise on the sale and leaseback of an asset. The gain or loss is determined as the difference between the net dis-posal proceeds, if any, and the carrying amount of the asset.

Consideration receivable is recognized at fair value and, if payment is deferred, the compensation is recognized at the cash price equivalent; any difference between the recognized amount and the nominal amount is recognized as interest revenue reflecting the effective yield on the receivable. The gain or loss arising from derecognition of a PP&E item is not classified as revenue.

The following insight looks at the issue of classification of revenue from the sale of assets held for rental. Note the date of the NIFRIC. Even though some NIFRICs are older, they still provide some insight into how the standards are interpreted by the standard setters.


June 2013


iaS 16 Property, Plant and Equipment — Sale of assets held for rental

Source niFriC


Insight



The IFRIC was asked to provide guidance on the accounting for sales of assets held for rental. Some entities sell assets after renting them out to third parties. In such circumstances, it appears that the asset is manufactured or acquired with a dual intention, to rent it out and to sell it. The issue is whether the sale of such an asset should be presented gross (revenue and costs of sales) or net (gain or loss) in the income statement.

The IFRIC noted that IAS 16 para-graph 68 states that gains arising from derecognition of an item of property, plant and equipment shall not be classified as revenue. Also, when the asset is classified as held for sale under IFRS 5 Non-current Assets Held for Sale and Discon-tinued Operations, IFRS 5 para-graph 24 refers to the derecognition requirements of paragraphs 67 – 72 of IAS 16, thereby confirming that gains should not be classified as revenue. However, some believed that, in some limited circumstances, reporting gross revenue in the income statement would be con-sistent with the Framework para-graph 72, with IAS 18 Revenue, IAS 2 Inventories, and IAS 40 Investment Properties and with the prohibition on offsets in IAS 1 Presentation of Financial Statements.

For this reason, the IFRIC decided to draw the issue to the attention of the Board and not to take the item onto to its own agenda.


exTraCT 17 — exCerpT FrOM ShOpperS drUg MarT COrpOraTiOn 2012



(l) Property and Equipment and Investment Property (in part)

(i) Recognition and Measurement (in part)

ShopperS Drug Mart Corporation annual report 2012 79

(j) Business Combinations

the Company applies the acquisition method in accounting for business combinations.

on acquisition, the assets, including intangible assets, and any liabilities assumed are measured at their fair value. purchase

price allocations may be preliminary when initially recognized and may change pending finalization of the valuation of the assets

acquired. purchase price allocations are finalized within one year of the acquisition and prior periods are restated to reflect any

adjustments to the purchase price allocation made subsequent to the initial recognition.

the determination of fair values, particularly for intangible assets, is based on management’s estimates and includes assumptions

on the timing and amount of future cash flows. the Company recognizes as goodwill the excess of the purchase price of an

acquired business over the fair value of the underlying net assets, including intangible assets, at the date of acquisition.

transaction costs are expensed as incurred. the date of acquisition is the date on which the Company obtains control over

the acquired business.

(k) Inventory

inventory is comprised of merchandise inventory, which includes prescription inventory, and is valued at the lower of cost and

estimated net realizable value. Cost is determined on the first-in, first-out basis. Cost includes all direct expenditures and other

appropriate costs incurred in bringing inventory to its present location and condition. the Company classifies rebates and other

consideration received from a vendor as a reduction to the cost of inventory unless the rebate relates to the reimbursement of

a selling cost or a payment for services.

net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling expenses.

(l) Property and Equipment and Investment Property

(i) Recognition and Measurement

items of property and equipment are carried at cost less accumulated depreciation and any recognized impairment losses

(see (p) impairment).

Cost includes expenditures that are directly attributable to the acquisition of the asset. the cost of self-constructed assets

includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition

for their intended use, and, where applicable, the costs of dismantling and removing the items and restoring the site on which

they are located. Borrowing costs are recognized as part of the cost of an asset, where appropriate.

purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When components of property and equipment have different useful lives, they are accounted for as separate items of property

and equipment.

gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal

with the carrying amount of property and equipment and are recognized net, within operating and administrative expenses,

in net earnings.

Fully depreciated items of property and equipment that are still in use continue to be recognized in cost and accumulated

depreciation.

(ii) Subsequent Costs

the cost of replacing part of an item of property and equipment is recognized in the carrying amount of the item if it is probable

that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably.

the carrying amount of the replaced part is de-recognized. the costs of repairs and maintenance of property and equipment

are recognized in earnings as incurred.


An entity that, in the course of its ordinary activities, routinely sells PP&E items held for rental to others, should transfer such assets to inventory at their carry-ing amount when they cease to be rented and are held for sale. The proceeds from the sale of such assets should be recognized as revenue in accordance with IAS 18. In such cases, IFRS 5 does not apply.

Disclosure[IAS 16.73 – .79]

For many entities, PP&E is a major part of the statement of financial position. The depreciation of these assets can have a material impact on profit or loss. Thus, it is not surprising that IAS 16 includes significant disclosure require-ments. The following chart summarizes some of the disclosures relating to PP&E.

illUSTraTiOn 6 — SUMMarY OF SOMe iaS 16 diSClOSUre reQUireMenTS

Type disclosure

Disclosures for each class of PP&E

• measurement bases (e.g., cost model) used in determining gross carrying amount

• depreciation methods used (e.g., straight line)• useful lives or depreciation rates• gross carrying amounts and accumulated depreciation,

including impairment losses at the beginning and end of the period

Reconciliation of the carrying amount at beginning and end of the period

• additions• depreciation• impairment losses recognized or reversed in profit or loss• increases or decreases resulting from revaluations and

from impairment losses recognized or reversed in other comprehensive income

• net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting entity

• assets classified as held for sale or included in a disposal group classified as held for sale in accordance with IFRS 5

• acquisitions through business combinations• other changes

Depreciation • depreciation, whether recognized in profit or loss or as a part of the cost of other assets, during a period, as well as accumulated depreciation at the end of the period


June 2013

Type disclosure

Estimate changes • nature and effect of any change in a PP&E accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods

• changes in estimate could relate to: o residual values o estimated costs of dismantling, removing and restor-

ing items of PP&E o useful lives o depreciation methods

Revaluation model • effective date of revaluation• whether an independent valuer was involved• for each revalued PP&E class, the carrying amount that

would have been recognized had the assets been carried under the cost model

• the revaluation surplus, indicating the change for the period and any restrictions on the distribution of the bal-ance to shareholders

• additional disclosures required by IFRS 13• a change in the revaluation surplus arising from a change

in the liability for an existing decommissioning, restoration or similar liability (IAS 1 requires disclosure in the state-ment of comprehensive income of each component of other comprehensive income or expense IFRIC 1 6(d))

Constructed assets • the amount of expenditures recognized in the carrying amount of a PP&E item in the course of its construction

Impaired assets • the amount of compensation from third parties for items of PP&E that were impaired, lost or given up, included in profit or loss (if not separately presented in the statement of comprehensive income)

• disclosures required by IAS 36

Restrictions and commitments

• the existence and amounts of restrictions on title and PP&E pledged as security for liabilities

• the amount of contractual commitments for the acquisi-tion of PP&E

Disclosures encouraged but not required

• temporarily idle PP&E• fully depreciated PP&E still in use• PP&E retired from active use but not classified as held for

sale• fair value of PP&E recognized under the cost model when

materially different from the carrying amount


IAS 16 suggests but does not require disclosure of the gross carrying amount of fully depreciated PP&E still in use. As IAS 16 requires a review of the useful life, residual value and depreciation method at least at each financial year-end, the existence of such assets is likely to be rare.

More general disclosure requirements under IAS 1 must also be met as they relate to PP&E. These include accounting policies, significant judgments made in applying accounting policies and sources of estimation uncertainty. Exam-ples include:• IAS 1.117 requires that the entity disclose a summary of significant account-

ing policies. This is especially important where there are accounting policy choices.

• IAS 1.122 requires disclosure of judgments made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognized in the financial statements.

• IAS 1.125 requires disclosure of information about the future and other major sources of estimation uncertainty at the end of the reporting period that have a significant risk of resulting in material adjustment to the carrying amounts of assets and liabilities within the next financial year.

appliCaTiOn reSOUrCeS

disclosure checklist

ResourcesTo ensure compliance with IAS 16, the use of a disclosure checklist is recommended.

CPA Canada has compiled numerous IFRS presentation and disclosure checklists available for download at www.cpacanada.ca/ifrs.

The following insight looks at the disclosure of temporarily idle assets or assets under construction when further construction has been postponed. Note the date of the NIFRIC. Even though some NIFRICs are older, they still provide some insight into how the standards are interpreted by the standard setters.


June 2013


disclosure of idle assets and construction in progress

Source niFriC


Insight



The IFRIC received a request for more guidance on the extent of required disclosures relating to prop-erty, plant and equipment temporar-ily idle or assets under construction when additional construction has been postponed. In accordance with paragraph 74(b) of IAS 16, an entity is required to disclose the amount of expenditures recognised in the car-rying amount of an item of property, plant and equipment in the course of its construction. Paragraph 79(a) encourages an entity to disclose the amount of property, plant and equipment that is temporarily idle.

The IFRIC also noted that paragraph 112(c) of IAS 1 requires an entity to provide in the notes information that is not presented elsewhere in the financial statements that is relevant to their understanding. The IFRIC noted that disclosure regarding idle assets might be particularly relevant in the current economic environ-ment. Consequently, the IFRIC expected that entities would provide information in addition to that spe-cifically required by IAS 16 whenever idle assets or postponed construc-tion projects become significant.

Given the requirements of IAS 16 and IAS 1, the IFRIC did not expect significant diversity in practice and decided not to add this issue to its agenda. However, the IFRIC rec-ommended that the Board should undertake a review of all disclosures encouraged (but not required) by IFRSs with the objective of either confirming that they are required or eliminating them.



The following extract provides an example of a reconciliation of the carrying amounts of assets at the beginning and end of the period.

exTraCT 18 — exCerpT FrOM TelUS COrpOraTiOn 2012 FinanCial STaTeMenTS

NOTE 15 — PROPERTy, PLANT AND EqUIPMENT

TELUS 2012 ANNUAL REPORT . 147

FINANCIAL STATEMENTS & NOTES: 15

Buildings and leasehold Assets under Assets under(millions) Network assets improvements finance lease Other Land construction Total

At costAs at January 1, 2011 $ß22,691 $ß2,351 $ß21 $ß1,550 $ß49 $ß438 $ß27,100Additions(1) 516 20 1 41 7 887 1,472Additions arising from business

acquisitions (Note 16(e)) – 11 – 7 – – 18Dispositions, retirements and other (220) (8) 1 (51) (1) – (279)Reclassifications 779 99 – 75 – (953) –

As at December 31, 2011 23,766 2,473 23 1,622 55 372 28,311Additions(1) 569 21 – 42 – 980 1,612

Additions arising from business acquisitions (Note 16(e)) – – – 2 – – 2

Dispositions, retirements and other (1,126) (16) (17) (80) – – (1,239)

Reclassifications 795 142 – 38 – (975) –

As at December 31, 2012 $ß24,004 $ß2,620 $ß 6 $ß1,624 $ß55 $ß377 $ß28,686

Accumulated depreciationAs at January 1, 2011 $ß16,555 $ß1,443 $ß10 $ß1,261 $ßß – $ßß – $ß19,269Depreciation 1,091 121 2 117 – – 1,331Dispositions, retirements and other (218) (4) 8 (39) – – (253)

As at December 31, 2011 17,428 1,560 20 1,339 – – 20,347Depreciation 1,192 126 3 101 – – 1,422

Dispositions, retirements and other (1,127) (12) (17) (92) – – (1,248)

As at December 31, 2012 $ß17,493 $ß1,674 $ß 6 $ß1,348 $ßß – $ßß – $ß20,521

Net book valueAs at December 31, 2011 $ß 6,338 $ß 913 $ß 3 $ß 283 $ß55 $ß372 $ß 7,964

As at December 31, 2012 $ß 6,511 $ß 946 $ßß – $ß 276 $ß55 $ß377 $ß 8,165

(1) For the year ended December 31, 2012, additions include $49 (2011 – $15) in respect of asset retirement obligations (see Note 19(a)).

15 Property, plant and equipment

The gross carrying amount of fully depreciated property, plant and

equipment that was still in use as at December 31, 2012, was $2.9 billion

(2011 – $3.0 billion).

As at December 31, 2012, our contractual commitments for the

acquisition of property, plant and equipment were $187 million over

a period through to 2014 (2011 – $188 million over a period through

to 2013).

Accounting Policy ChoicesThe following chart summarizes some significant accounting policy choices in IAS 16.

reference policy choice alternatives insights

IAS 16.29 Measurement of PP&E after recognition

1. Cost model2. Revaluation model

The policy choice is made for each class of PP&E and must apply to the entire class.

A class of PP&E is a grouping of assets of a similar nature and use in an entity’s operations.


June 2013


IAS 16.35 Revaluation of depre-ciable assets

When an item of PP&E is revalued, any accu-mulated depreciation at the date of revaluation is treated in one of two ways:2

1. Restate propor-tionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount

2. Eliminate against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset

Alternative 1 is often used when an asset is revalued by means of applying an index to determine its replace-ment cost (see IFRS 13).

Alternative 2 is often used for buildings.

IAS 16.41 Transferring revaluation surplus

1. Transfer revaluation surplus to retained earnings on asset derecognition

2. Transfer a relevant portion of the revaluation surplus to retained earn-ings as the asset is depreciated, with the balance remaining (if any) transferred on asset derecognition

3. No transfer of revaluation surplus to retained earnings

Alternative 1 may involve transferring the whole of the surplus when the asset is retired or disposed of.

For alternative 2, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost.

2 Note: Refer to the Standards Update section in this publication. A proposed amendment to IAS 16 would change the guidance in (1) below and state that accumulated depreciation is computed as the difference between the gross and net carrying amounts. The amendment will also clarify that the determination of accumulated depreciation does not depend on the selection of the valuation technique.



IAS 16.41

(continued)

The revaluation surplus transfers referred to in IAS 16.41 are implied to be at the option of the reporting entity, rather than being mandated by the Standard. There would, therefore, appear to be another alternative — to make no reserve transfer (alter-native 3). That option would, however, result in the permanent reten-tion of the portion of the revaluation reserve relating to assets that have been fully depreci-ated or disposed of.

Transfers from revalua-tion surplus to retained earnings are not made through profit or loss.


June 2013

Significant Judgments and EstimatesThe following chart summarizes some possible significant judgments and sources of estimation uncertainty required by IAS 16. This is not meant to be an exhaustive list and other judgments and/or estimates most certainly exist within IAS 16.

illUSTraTiOn 7 — SOMe SigniFiCanT JUdgMenTS and SOUrCeS OF eSTiMaTiOn

UnCerTainTY Under iaS 16

Judgments Sources of estimation uncertainty

policy choice• whether to measure PP&E using the cost

model or the revaluation model value (IAS 16.29)

Both cost model and revaluation model• unit of measure for recognition of an item

of PP&E (i.e., the amount of aggregation)• determination of which costs (initial and

subsequent) meet the recognition criteria of IAS 16, including which costs are directly attributable (e.g., safety equip-ment, spare parts, replacement parts, inspection costs and costs for self-con-structed assets)

• significant components of assets and the allocation of costs to components (for depreciation)

• selection of depreciation methods and depreciation start date

• how much detail to provide in note disclosures

• assessment of impairment under IAS 36• when an item of PP&E should be

derecognized.

revaluation model• frequency of revaluations• how to treat accumulated depreciation on

revaluation of an item of PP&E (IAS 16.35)• when to transfer a revaluation surplus to

retained earnings (IAS 16.41)

Both cost model and revaluation model• determination of the residual value of

a depreciable item of PP&E• determination of the useful life of a

depreciable item of PP&E• timing and amount of costs of disman-

tling, removal and site restoration and changes to these costs

• discount rate to be used for the above• recoverability of tangible capital assets• estimate of the recoverable amount for

impairment testing

revaluation model• determination of fair value of revalued

items of PP&E


exTraCT 19 — exCerpT FrOM enerFlex lTd. 2012 FinanCial STaTeMenTS

NOTE 4 — SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

EnErflEx ltd.82

NOTES TO ThE CONSOLIDATED fINANCIAL STATEMENTS

NOTE 4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTSThe preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and

assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent

liabilities, at the end of the reporting period. Estimates and judgments are continually evaluated and are based on historical

experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to

the carrying amount of the asset or liability affected in future periods. In the process of applying the Company’s accounting

policies, management has made the following judgments, estimates and assumptions which have the most significant effect on

the amounts recognized in the consolidated financial statements:

> Revenue Recognition – Long-Term Contracts

The Company reflects revenues generated from the assembly and manufacture of projects using the percentage-of-

completion approach of accounting for performance of production-type contracts. This approach to revenue recognition

requires management to make a number of estimates and assumptions surrounding the expected profitability of the

contract, the estimated degree of completion based on cost progression and other detailed factors. Although these

factors are routinely reviewed as part of the project management process, changes in these estimates or assumptions

could lead to changes in the revenues recognized in a given period.

> Provisions for Warranty

Provisions set aside for warranty exposures either relate to amounts provided systematically based on historical

experience under contractual warranty obligations or specific provisions created in respect of individual customer issues

undergoing commercial resolution and negotiation. Amounts set aside represent management’s best estimate of the

likely settlement and the timing of any resolution with the relevant customer.

> Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation, including any asset impairment losses.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated

useful lives of property, plant and equipment are reviewed on an annual basis. Assessing the reasonableness of

the estimated useful lives of property, plant and equipment requires judgment and is based on currently available

information. Property, plant and equipment are also reviewed for potential impairment on a regular basis or whenever

events or changes in circumstances indicate that the carrying amount may not be recoverable.

Changes in circumstances, such as technological advances and changes to business strategy can result in actual

useful lives and future cash flows differing significantly from estimates. The assumptions used, including rates and

methodologies, are reviewed on an ongoing basis to ensure they continue to be appropriate. Revisions to the estimated

useful lives of property, plant and equipment or future cash flows constitute a change in accounting estimate and are

applied prospectively.

> Allowance for Doubtful Accounts

An allowance for doubtful accounts is made when there is objective evidence that the collection of the full amount

is no longer probable under the terms of the original invoice. Impaired receivables are derecognized when they are

assessed as uncollectible. Amounts estimated represent management’s best estimate of probability of collection of

amounts from customers.

> Impairment of Inventory

The Company regularly reviews the nature and quantities of inventory on hand and evaluates the net realizable value of

inventory items based on historical usage patterns, known changes to equipment or processes and customer demand

for specific products. Significant or unanticipated changes in business conditions could impact the magnitude and

timing of inventory impairment.

EnErflEx ltd.82

NOTES TO ThE CONSOLIDATED fINANCIAL STATEMENTS

NOTE 4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTSThe preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and

assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent

liabilities, at the end of the reporting period. Estimates and judgments are continually evaluated and are based on historical

experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to

the carrying amount of the asset or liability affected in future periods. In the process of applying the Company’s accounting

policies, management has made the following judgments, estimates and assumptions which have the most significant effect on

the amounts recognized in the consolidated financial statements:

> Revenue Recognition – Long-Term Contracts

The Company reflects revenues generated from the assembly and manufacture of projects using the percentage-of-

completion approach of accounting for performance of production-type contracts. This approach to revenue recognition

requires management to make a number of estimates and assumptions surrounding the expected profitability of the

contract, the estimated degree of completion based on cost progression and other detailed factors. Although these

factors are routinely reviewed as part of the project management process, changes in these estimates or assumptions

could lead to changes in the revenues recognized in a given period.

> Provisions for Warranty

Provisions set aside for warranty exposures either relate to amounts provided systematically based on historical

experience under contractual warranty obligations or specific provisions created in respect of individual customer issues

undergoing commercial resolution and negotiation. Amounts set aside represent management’s best estimate of the

likely settlement and the timing of any resolution with the relevant customer.

> Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation, including any asset impairment losses.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated

useful lives of property, plant and equipment are reviewed on an annual basis. Assessing the reasonableness of

the estimated useful lives of property, plant and equipment requires judgment and is based on currently available

information. Property, plant and equipment are also reviewed for potential impairment on a regular basis or whenever

events or changes in circumstances indicate that the carrying amount may not be recoverable.

Changes in circumstances, such as technological advances and changes to business strategy can result in actual

useful lives and future cash flows differing significantly from estimates. The assumptions used, including rates and

methodologies, are reviewed on an ongoing basis to ensure they continue to be appropriate. Revisions to the estimated

useful lives of property, plant and equipment or future cash flows constitute a change in accounting estimate and are

applied prospectively.

> Allowance for Doubtful Accounts

An allowance for doubtful accounts is made when there is objective evidence that the collection of the full amount

is no longer probable under the terms of the original invoice. Impaired receivables are derecognized when they are

assessed as uncollectible. Amounts estimated represent management’s best estimate of probability of collection of

amounts from customers.

> Impairment of Inventory

The Company regularly reviews the nature and quantities of inventory on hand and evaluates the net realizable value of

inventory items based on historical usage patterns, known changes to equipment or processes and customer demand

for specific products. Significant or unanticipated changes in business conditions could impact the magnitude and

timing of inventory impairment.


June 2013

Appendix A — Acronyms Used

acSB Accounting Standards Board

Cpa Canada Chartered Professional Accountants of Canada

ed Exposure Draft

iaS International Accounting Standard

iaSB International Accounting Standards Board

idg IFRS Discussion Group

iFriC IFRS Interpretations Committee

iFrS International Financial Reporting Standard

niFriC Non-IFRS Interpretations Committee abstract

OCi Other comprehensive income

pp&e Property, plant and equipment

viU Value in use

277 WELLINGTON STREET WESTTORONTO, ON CANADA M5V 3H2T. 416 977.3222 F. 416 977.8585WWW.CPACANADA.CA

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