ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 87
The following table summarizes the effect of transition to IFRS relating to investment in Petrolifera:
(Canadian dollar in thousands) January 1, 2010 December 31, 2010
Balance sheet
Amount reported under previous GAAP $ 50,379 $ 27,938
Share of accumulated income (loss) (1,584) 4,873
Share of accumulated other comprehensive loss (627) (4,492)
Deferred tax 72 (636)
Total Investment balance under IFRS 48,240 27,683
Other asset – derivative financial asset 2,711 474
Total investment in Petrolifera 50,951 28,157
Less: Assets classified as held for sale $ – $ 28,157
Net earnings (loss)
Share of interest in associate $ – $ 5,377
Finance charges – change in fair value of derivative – (2,237)
Deferred tax – 228
Effect to Retained Earnings (Deficit) excluding January, 1 2010 adjustments – 3,368
Adjustments to Retained Earnings (Deficit) – January 1, 2010
Share of loss (1,584) (1,584)
Derivative financial asset 2,711 2,711
1,127 1,127
Total impact on Retained Earnings (Deficit) $ 1,127 $ 4,495
27.8 Taxes
The company recorded the following differences to the amounts reported for deferred tax under previous GAAP compared to IFRS.
Flow–through shares – Under Canadian income tax legislation, a company is permitted to issue flow–through shares whereby the company is
obligated to incur qualifying expenditures and renounce the related income tax deductions to the investors. Generally, due to transferring the benefit
of tax deductions to the investors, common shares issued on a flow–through basis are offered at higher than the prevailing quoted prices of the
company’s common shares.
Under previous GAAP, the company recorded a deferred tax liability on renouncement of these qualifying expenditures with a corresponding reduction
of share capital. Under IFRS, the proceeds from issuance of these shares are allocated between share capital and a liability to incur the qualifying
expenditures. The amount allocated to share capital represents the quoted price of the existing shares whereas the liability represents the difference
between the quoted price of the existing shares and the amount the investor pays for the shares. The liability is reversed when qualifying expenditures
are renounced for tax purposes. As a result, share capital increased by $2.3 million and $7.6 million with a corresponding increase to deficit on
January 1, 2010, and December 31, 2010, respectively.
Discount on issue of long–term debt and capitalized stock–based compensation – Under IFRS deferred tax on temporary differences is not
recorded for an item which is not a business combination and at the time of the transaction, neither affects accounting or taxable income. As a result,
the company reversed previously recognized deferred income tax asset and liability with respect to the non-deductible portion of discount on issue of
long-term debt and capitalized stock-based compensation with a corresponding reduction to Retained Earnings (Deficit).
Inter–company capital losses and foreign exchange – An adjustment to recognize the deferred tax benefit on an intercompany capital loss was
recorded under IFRS net of unrealized foreign exchange gain or losses on long–term debt. This was not permitted under previous GAAP.
Current vs non–current classification – Under IFRS, all deferred taxes are classified as non–current, irrespective of the classification of the
underlying assets or liabilities to which they relate, or the expected reversal of the temporary difference. The effect was to reclassify $2.3 million at
January 1, 2010 and $4.5 million at December 31, 2010 from deferred tax assets (current) to deferred tax liabilities (non–current).