2007 annual report aveiro investment corp. - First West Properties

NOTES TO THE FINANCIAL STATEMENTS June 30, 2007 and 2006
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Use of estimates
The preparation of fi nancial statements in accordance with Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the fi nancial statements and the reported amounts of revenues and
expenses during the period then ended. Actual results could differ from those estimates. Signifi cant areas requiring the
use of management estimates include assessing the recoverability of income producing properties and property held
for development.
Accounting standard setters have determined that the use of the Black-Scholes or a customized lattice option pricing
model will provide a reasonable estimate of the fair value of options granted by an enterprise. The Company has selected
the Black-Scholes model as appropriate for its circumstances. The factors used in the Black-Scholes calculation are a
signifi cant estimate.
(e) Stock based compensation
The Company uses the fair value method of accounting for stock-based compensation whereby the Company recognizes
the fair value of stock options granted to employees, directors, offi cers and certain consultants. The fair value of stock
options is determined using the Black-Scholes option pricing model. Consideration paid by the option holder on exercise
of stock options is recorded as share capital.
(f) Income-producing properties
Income-producing properties are carried at cost less accumulated amortization. If events or circumstances indicate that
the carrying value of the income-producing property may be impaired, a recoverability analysis is performed based upon
estimated undiscounted cash fl ows to be generated from the income-producing property. If the analysis indicates that the
carrying value is not recoverable from future cash fl ows, the income-producing property is written-down to estimated fair
value and an impairment loss is recognized.
Upon acquisition of properties, the purchase price is allocated based on estimated fair values to land, building, parking
lots and intangibles, if any.
Amortization of income-producing properties is provided on the following basis and rates:
Buildings Straight-line up to 50 years
The rates are determined based on market factors and the type of structure specifi c to the properties.
(g) Property held for development
Property held for development includes initial acquisition costs, other direct costs and realty taxes, interest, and operating
expenses net of revenues during the period of development.
36 | Aveiro Investment Corp. | 2007 Annual Report