2012 Annual Report - Prometic - Life Science, Inc.

n) Income taxes
The Company uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are recognized in the
consolidated statement of financial position for the future tax consequences attributable to differences between the consolidated financial
statements carrying values of existing assets and liabilities and their respective income tax bases. Deferred income tax assets and liabilities are
measured using income tax rates expected to apply when the assets are realized or the liabilities are settled. The effect of a change in income
tax rates is recognized in the year during which these rates change. Deferred income tax assets are recognized to the extent that it is probable
that future tax profits will allow the future tax assets to be recovered.
o) Share-based payments
The Company has a stock-based compensation plan and applies the fair value method. The fair value of stock options granted is determined
at the appropriate measurement date using the Black-Scholes option pricing model, and is generally expensed over the vesting period of
the options. Awards with graded vesting are considered to be multiple awards for fair value measurement and stock-based compensation
calculation. In determining the expense, the Company deducts the number of awards that are expected to be forfeited at the time of grant
and revises this estimate, if necessary, in subsequent years if actual forfeitures differ from those estimates. The Company’s policy is to issue new
shares upon the exercise of stock options.
p) Share issue expenses
The Company records share issue expenses as an increase to the deficit.
q) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that takes a substantial period of time to get ready
for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are recognized in profit or loss in
the period during which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of
funds. No borrowing costs have been capitalized by the Company as there are no assets which take a substantial period of time to get ready for
their intended use or sale.
3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATION UNCERTAINTY
The preparation of these consolidated financial statements requires the use of judgments, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. The uncertainty that is often inherent in estimates and
assumptions could result in material adjustments to assets or liabilities affected in future periods.
Significant judgments
Revenue recognition
During the year ended December 31, 2012, the Company signed revenue agreements which provided, among other payments, upfront payments
in exchange for licenses and other access to intellectual property. This required careful judgment to assess whether these payments were received
in exchange for the provision of goods or services which had stand-alone value to the customer.
Consolidated financial statements
In determining that the Company did not control, but had only significant influence in the investment in an associated company described in note
10, consideration was given to the composition of the entity’s board of directors and the manner in which key operating and financing decisions
will be made. A conclusion that the Company controlled the investment would have required that its assets and liabilities and results of operations
be consolidated with those of the Company, along with the elimination of all inter-company transactions.
Functional currency
The functional currency of foreign subsidiaries is reviewed on an ongoing basis to assess if changes in the underlying transactions, events and
conditions have resulted in a change. During the year ended December 31, 2012, no changes were deemed necessary. In addition, judgment
is applied the treatment and amount of the currency translation of inter-company loans in order to determine if they form part of the parent
company’s net investment in the foreign subsidiary. This treatment results in foreign currency adjustments from translation recorded in other
comprehensive (loss) income.
PROMETIC LIFE SCIENCES INC.
33