Financial Statements of - Shoppers Drug Mart

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SHOPPERS DRUG MART CORPORATION Notes to the Consolidated Financial Statements (unaudited) (in thousands of Canadian dollars, except per share data) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Share-based Payment Transactions The grant date fair value of stock options granted to employees is recognized as employee compensation expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. Fair value is measured using the Black-Scholes option-pricing model. If the Company can reasonably estimate forfeitures of vested options, the amount expensed is adjusted for estimated forfeitures. For amounts that have been recognized related to options not yet vested that are subsequently forfeited, the amounts recognized as expenses and equity are reversed. The fair value of the amount payable to employees in respect of cash-settled share-based awards is recognized as an expense, with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment. The fair value of the liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized in operating and administrative expenses in earnings. (t) Provisions Provisions are recognized when there is a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and that obligation can be measured reliably. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Provisions are reviewed on a regular basis and adjusted to reflect management’s best current estimates. Due to the judgemental nature of these items, future settlements may differ from amounts recognized. Provisions are comprised of estimated insurance claims, litigation settlements and store closing costs. (i) Insurance Claims The insurance claim provision is management’s best estimate of future payments for current insurance claims that are below the Company’s deductible limits and is based on a determinations made by an independent insurance adjuster. The timing of utilization of the provision will vary according to the individual claims. (ii) Litigation Settlements A provision for legal claims is recognized when it is probable that a settlement will be made in respect of a claim. (iii) Store Closing Costs The Company records a provision for store closings when it vacates current leased-store locations and relocates. 39
SHOPPERS DRUG MART CORPORATION Notes to the Consolidated Financial Statements (unaudited) (in thousands of Canadian dollars, except per share data) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (u) Associate Interest Associate interest reflects the investment the Associates have in the net assets of their businesses. Under the terms of the Company’s agreements with Associates (the “Associate Agreements”), the Company agrees to purchase the assets that the Associates use in store operations, primarily at the carrying value to the Associate, when Associate Agreements are terminated by either party. (v) New Standards and Interpretations not yet Adopted A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the financial year ending December 31, 2011, and accordingly, have not been applied in preparing these consolidated financial statements: (i) Financial Instruments – Disclosures The IASB has issued an amendment to IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7 amendment”), requiring incremental disclosures regarding transfers of financial assets. This amendment is effective for annual periods beginning on or after July 1, 2011. The Company will apply the amendment at the beginning of its 2012 financial year and does not expect the implementation to have a significant impact on the Company’s disclosures. (ii) Deferred Taxes – Recovery of Underlying Assets The IASB has issued an amendment to IAS 12, “Income Taxes” (“IAS 12 amendment”), which introduces an exception to the general measurement requirements of IAS 12 in respect of investment properties measured at fair value. The IAS 12 amendment is effective for annual periods beginning on or after January 1, 2012. The Company will apply the amendment at the beginning of its 2012 financial year. The Company has yet to assess the impact of the IAS 12 amendment on its results of operations, financial position and disclosures. (iii) Financial Instruments The IASB has issued a new standard, IFRS 9, “Financial Instruments” (“IFRS 9”), which will ultimately replace IAS 39, “Financial Instruments: Recognition and Measurement” (“IAS 39”). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is part of the first phase. This standard becomes effective on January 1, 2013. The Company has yet to assess the impact of the new standard on its results of operations, financial position and disclosures. 40
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Financial Statements of - Shoppers Drug Mart

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