## CAPITAL POWER CORPORATION 

Notes to the Consolidated Financial Statements 

(Tabular amounts in millions of Canadian dollars, except share and per share amounts) 

## 2. Significant accounting policies, continued: 

(n) Impairment of non-financial assets, continued: 

At the end of each reporting period the Company makes an assessment as to whether there is any indication that previously incurred impairment losses no longer exist. If such an indication exists, the Company estimates the asset’s recoverable amount. Any reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount or the carrying amount that would have been determined, after depreciation or amortization, had the original impairment loss not been recognized. 

Any reversal is recognized into net income for the period. An impairment loss in respect of goodwill is not reversed. 

(o) Impairment of financial assets: 

Financial assets, other than those classified as held at fair value through income or loss with changes in fair value recognized in the statement of income, are assessed for indicators of impairment at the end of each reporting period. An impairment loss would be recorded for investments recorded at cost where it is identified that there is objective evidence that one or more events has occurred after the initial recognition of the asset, that has had an impact on the estimated future cash flows of the asset that can be reliably estimated. 

For listed and unlisted equity investments classified as available for sale, a significant or prolonged decline in the fair value of the investment below its cost is considered to be objective evidence of impairment. 

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are in addition assessed for impairment on a collective basis. Objective evidence of impairment includes the Company’s past experience of collecting payments, as well as observable changes in national or local economic conditions. 

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the asset’s original effective interest rate. Any impairment loss is recognized in net income. If, in a subsequent reporting period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is adjusted through net income. 

(p) Income taxes: 

Income tax expense is comprised of current and deferred taxes. Current and deferred tax is recognized in net income except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. 

Current income taxes for the current period, including any adjustments to tax payable in respect of previous years, are recognized and measured at the amount expected to be recovered from or payable to the taxation authorities based on the tax rates that are enacted or substantively enacted by the end of the reporting period. 

Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using the tax rates that are expected to apply in the period in which the deferred tax asset or liability is expected to settle, based on the laws that have been enacted or substantively enacted by the reporting date. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable income nor the accounting income. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and reduced accordingly to the extent that it is no longer probable that they can be utilized. 

