Notes to the Consolidated Financial Statements (Tabular amounts in millions of Canadian dollars, except share and per share amounts) 

## 2. Significant accounting policies, continued: 

## (l) Research and development costs: 

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in income or loss as incurred. 

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in income or loss as incurred. 

Capitalized development expenditures are measured at cost less accumulated amortization and accumulated impairment losses. 

## (m) Capitalized borrowing costs: 

The Company capitalizes interest during construction on its property, plant and equipment and intangible assets to provide for the costs of borrowing on its construction activities. Where project specific debt is not used to finance construction, interest is applied during construction using the weighted average cost of debt incurred on the Company’s external borrowings used to finance qualifying assets. Qualifying assets are those which necessarily take a significant amount of time to get ready for their intended use. 

## (n) Impairment of non-financial assets: 

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into a CGU, which is the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes. 

The Company reviews the recoverability of non-financial assets subject to depreciation or amortization (property, plant and equipment and definite life intangible assets) when events or changes in circumstances may indicate or cause the asset’s carrying amount to exceed its recoverable amount. The Company reviews the recoverability of goodwill and indefinite life intangibles on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. The asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use. The value in use is the present value of expected future cash flows discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Fair value less costs to sell is based on estimated market values based on actual market transactions, if available. When actual market transactions are not available, a valuation model is used. 

The Company’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. 

Any impairment loss would be recorded in net income in the period when it is determined that the carrying amount of the asset may not be recoverable. The impairment loss would be recorded as the excess of the carrying amount of the asset over its recoverable amount. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGUs, and then to reduce the carrying amounts of the other assets in the CGUs on a pro rata basis. 

