ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 53
Goodwill is allocated to the applicable cash–generating unit as defined in note 3.6. Goodwill is not amortized and is tested for impairment annually
on December 31 or whenever there is an indication that the cash-generating unit to which goodwill is allocated may be impaired, in accordance with
note 3.6.
3.6 Impairment
Non–financial assets (E&E, PP&E and Goodwill)
When impairment indicators exist or when impairment testing is required for non–financial assets, an impairment test is carried out in which the
carrying amounts of those assets are compared to their recoverable amount, which is the higher of fair value less costs to sell (“FVLCS”) and value–
in–use (“VIU”). For purposes of the impairment test, E&E, PP&E and goodwill are grouped together into the smallest group of assets that generates
largely independent cash flows from other assets or groups of assets (the “cash–generating unit” or “CGU”).
VIU is determined by estimating the discounted future cash flows expected to be derived from continuing use of the assets. In determining FVLCS,
recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples or other available fair value indicators.
Impairment losses are recognized in net earnings (loss) and reported within depletion, depreciation, amortization and impairment. Impairment losses
recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying
amount of the other assets in the CGU.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior years are assessed at each
reporting date for any indications that the loss has decreased or no longer exists. If the amount of the impairment loss decreases in a subsequent
period and the decrease can be objectively related to an event occurring after the impairment was recognized, the impairment loss is reversed up to the
original carrying amount of the asset that would have been determined, net of depletion, depreciation, amortization and impairment, if no impairment loss
had been recognized. Such reversal is recognized in net earnings (loss) and reported within depletion, depreciation, amortization and impairment.
Financial assets (Cash, Trade and accrued receivable and Investment in equity securities)
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence
that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset,
and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
The company considers evidence of impairment for trade and accrued receivables at a specific asset level. All individually significant trade and
accrued receivables are assessed for specific impairment. An impairment loss is calculated as the difference between its carrying amount and the
present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in net earnings (loss)
and reflected in an allowance account against trade and accrued receivables. When a subsequent event causes the amount of impairment loss to
decrease, the decrease in impairment loss is reversed through net earnings (loss).
3.7 Investment in associate
An associate is an entity over which the company has the right to exercise significant influence, but not control, over the financial and operating
policies. The investment in associate is accounted for using the equity method of accounting. Under the equity method, the investment is initially
recorded at cost and subsequently adjusted for the post–acquisition changes in the company’s share of net assets of associate, after adjustment to
align the accounting policies with those of the company. The company’s net earnings or loss reflects the company’s share of the net earnings or loss
after tax of the associate.
The company assesses the investment in associate for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If any such indication of impairment exists, the carrying amount of the investment is compared with its recoverable amount,
being the higher of its fair value less costs to sell and value in use. Where the carrying amount exceeds the recoverable amount, the investment is
written down to its recoverable amount.
The company ceases to use the equity method of accounting on the date from which it no longer has significant influence over the associate, or when
the investment becomes held for sale.
Losses of an associate in excess of the company’s equity interest in that associate are recognized only to the extent that the company has incurred
legal or constructive obligations or made payments on behalf of the associate.
3.8 Income taxes
Tax expense comprises current and deferred taxes. Tax expense is recognized in net earnings (loss) except when it relates to items recognized in
other comprehensive income (loss). Income tax assets and liabilities are presented separately in the consolidated balance sheet except where there is
a right of set–off within fiscal jurisdictions and an intention to settle such balances on a net basis.