2004 Crown Investments Corporation of Saskatchewan Annual Report

Notes to Consolidated Financial StatementsDecember 31, 20041. Summary of Significant Accounting Policies (continued)s) Derivative financial instruments (continued)Effective January 1, 2004, the Corporation commenced application of the new Canadian Institute ofChartered Accountants Accounting Guideline 13. The guideline requires identification, designation,documentation and effectiveness of hedging relationships be established at the inception of eachhedge in order to apply hedge accounting. Hedge accounting is used when there is a high degree ofcorrelation between price movements in the derivative financial instrument and the item designated asbeing hedged. Gains and losses are recognized in the same period as the hedged item is settled and arerecorded in the statement of earnings and retained earnings. If correlation ceases, hedge accountingis terminated and future changes in the market value of the derivative instruments are recognized asgains or losses in the period of change. For those derivative instruments that existed at January 1, 2004,there was no material impact on these financial statements as a result of the adoption of AccountingGuideline 13.t) Employee future benefitsThe Corporation has three defined benefit pension plans and a defined contribution pension planthat provides retirement benefits for its employees. For its defined benefit plans, the Corporation hasadopted the following policies:i) For the purpose of calculating the expected return on plan assets, those assets are valued at marketvalue, which approximates fair value.ii) Pension obligations are determined by an independent actuary using the projected benefit methodprorated on service and management’s best estimate assumptions of expected plan investmentperformance, salary escalation, age at retirement, mortality of members and future pensionindexing, based upon the consumer price index.iii) The discount rate used to determine the accrued benefit obligation was determined by referenceto market interest rates at the measurement date of high-quality debt instruments with cash flowsthat match the timing and amount of expected benefit payments.iv) Past service costs from plan amendments and the transitional asset are amortized on a straight-linebasis over a period of time which is a blending of the expected average remaining service lifetimeof the active members and the future life expectancy of the pensioners.v) The excess of the net actuarial gain (loss) over 10 per cent of the greater of the accrued benefitobligation and the fair value of the plan assets is amortized over a period of time which is blendingof the expected average remaining service lifetime of the active members and the future lifeexpectancy of the pensioners.vi) When the restructuring of a benefit plan results in both a settlement and a curtailment ofobligations, the curtailment is accounted for prior to the settlement.The Corporation also provides a defined benefit service recognition plan for management employees.The cost of the plan is determined using the projected benefit method prorated on service.u) Use of estimatesThe preparation of financial statements in conformity with Canadian generally accepted accountingprinciples requires management to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the reporting period.72