## Cash-settled shaRe-based payments 

Canadian GAAP – A liability for share appreciation rights is accrued based upon the intrinsic value of the award with changes recognized in the income statement each period. 

IFRS – An entity must measure the liability incurred at fair value by applying an option pricing model. Until the liability is settled, the fair value of the liability is re-measured at each reporting date, with changes in fair value recognized as the awards vest. Changes in fair value of vested awards are recognized immediately in earnings. As a result, the Company adjusted expenses associated with share appreciation rights to reflect the changes of the fair values of these awards on transition to IFRS. 

(v) Hedge accounting 

The Company uses cash flow hedge accounting to account for foreign exchange contracts, which are entered into based on the highly probable forecasted future cash outflows attributable to the Company’s inventory purchases in U.S. dollars. The effective portion of changes in the fair value of derivatives entered into that are designated and qualify as cash flow hedges is recognized in other comprehensive income. Any gain or loss in fair value relating to the ineffective portion is recognized immediately in other income (expense). 

Canadian GAAP permits any ineffectiveness resulting from when the hedged item is an anticipated transaction and the transaction does not occur by the end of the originally specified and documented time period but is considered highly probable to occur within an additional two-month period thereafter, that portion of ineffectiveness may be deferred in other comprehensive income until the anticipated transaction takes place. IFRS is consistent with Canadian GAAP with respect to permitting ineffectiveness being deferred into other comprehensive income with the exception that the delay in the anticipated transaction must be such that it occurs within a reasonably specific and generally narrow range of time, which, in practice, is considerably less than the two-month time period allowed under Canadian GAAP. 

As a result, the Company was required to recognize the amount that had been deferred to other comprehensive income under Canadian GAAP as at the transition date relating to the over-hedged position as well as adjust for the ineffective portion of what was included in the Company’s accounting for the gain and loss in inventory that would not have otherwise flowed through income prior to the IFRS transition date. This resulted in the Company recognizing the following adjustments: 

As at the transition date: 

1. A decrease to inventories of $0.3 million; 

2. A decrease to Accumulated Other Comprehensive Income of $0.1 million; 

3. A net deferred income tax asset of $0.1 million; and 

4. A reduction to opening retained earnings of $0.3 million. 

(vi) Impairment of a financial asset 

The Company’s accounting policy for debt issuance transaction costs include the costs incurred to obtain financings in the way of fees paid to agents, advisors, brokers and dealers, transfer taxes and duties. These transaction costs are and have been consistently reflected by the Company and its subsidiaries as a reduction in the carrying value of the associated financing obtained and amortized to interest expense using the effective interest method over the life of the debt consistent with the requirements of Canadian GAAP 3855 and IAS 39. IAS 39 requires, however, that if an entity revises its estimates of payments or receipts with respect to the associated financings, the entity shall adjust the carrying amount of the financial asset to reflect actual and revised estimated cash flows. As a result, on transition to IFRS, the Company was required to estimate the Company’s expected future cash flows and as we do not anticipate to utilize the maximum credit available to the Company, the guidance with respect to an impairment of a financial asset under IFRS indicates that it is considered that we would have no remaining benefit from the deferred financing fees paid for a credit facility that is not being used (or proportionally not used) and as such this expenditure should no longer be capitalized. As a result, the Company made the following adjustments to record the impairment of deferred financing fees representing the pro rata share equal to the expected future unused portion of the working capital credit facility: 

As at the transition date the Company recognized: 

1. An increase in bank loans of $0.3 million; 

2. A net deferred income tax asset of $0.1 million; and 

3. A reduction to opening retained earnings of $0.2 million. 

