## Option Plan and Share Option Reserve 

On the acquisition of ReD, Capstone issued replacement options to the existing option holders of ReD and recorded them at fair value. The share option plan is for the former key employees, directors and service providers of ReD. Since October 1, 2013, this plan no longer grants share options. Changes in the value, based on non-market vesting conditions, are calculated using the Black-Scholes model each period end and are expensed with a corresponding adjustment to equity. When the options are exercised, the Corporation issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital. 

## Dividends 

Dividends on common and series A preferred shares are recognized in the Corporation's consolidated financial statements in the period in which the dividends are declared by the Board of Directors of the Corporation. 

## Revenue and Expense Recognition 

Revenue derived from the sale of electricity and steam is recognized upon delivery to the customer and priced in accordance with the provisions of the applicable electricity and steam sales agreements. Certain power purchase arrangements provide for an electricity rate adjustment, which is updated periodically both for the current and prior periods. The Corporation accounts for such adjustments when a reliable estimate of the adjustment can be determined. Revenue derived from Whitecourt electricity sales to the Alberta power pool in excess of the volume as stipulated in the PPA is recorded at the hourly power pool rate. Cardinal has a profit-sharing arrangement with Husky Energy Marketing Inc. (“Husky Marketing”) to sell excess gas not used in its operations in the market. Net proceeds from gas mitigation are recognized as revenue when delivery has taken place. Capstone follows Accounting for Government Grants and disclosure of Government Assistance (IAS 20) with respect to certain power contracts with provincial jurisdictions. 

Capstone recognizes management fees and development-related incentive fees in revenue received from its equity accounted investments as earned based on the terms of its respective agreements. 

Revenue from the sale of water is recognized upon delivery to the customer and priced in accordance with regulatory pricing. Revenue from metered supplies is based upon actual volumes of water invoiced plus estimated volumes of water not invoiced but delivered to customers during the year. Interest income is earned with the passage of time and is recorded on an accrual basis. 

Costs related to the purchases of fuel are recorded upon delivery. All other costs are recorded as incurred. 

Project development costs are recorded as incurred. These costs include the activities to pursue and develop greenfield projects in the power segment and acquisition related business development expenses incurred at corporate. 

Interest expense is incurred with the passage of time and is recorded on an accrual basis. 

## Deferred Share Unit Plan 

The Corporation has a Deferred Share Unit (“DSU”) plan for eligible directors and employees of Capstone as described in note 24 (a) to these consolidated financial statements. The Corporation accounts for DSUs as an expense over the vesting period of the DSUs using the fair value of the underlying common shares, as determined by the closing price of the Corporation's publicly traded common shares on the reporting date. Changes in the Corporation's liability subsequent to the vesting date of the award and prior to the settlement date, resulting from changes in the market value of Capstone's common shares, are recorded as a charge to income in the period incurred. 

## Long-term Incentive Plan 

The Corporation has a long-term incentive plan (“LTIP”) for members of senior management as described in note 24 (b). The Corporation accounts for its grants under this plan in accordance with IFRS 2 Share-Based Payments. Compensation expense is recognized over the vesting period of the LTIP units and is adjusted for any changes in market value of the Corporation's share price. 

## Income Taxes 

Current and deferred income taxes are recognized in the consolidated statement of income except to the extent that they relate to items recognized directly in equity, in which case, the income tax is also recognized directly in equity. 

Current income tax is the amount recoverable or expensed based on the current year's taxable income using tax rates enacted, or substantively enacted, at the reporting period, and any adjustments to income tax payable or recoveries in respect of previous years. 

The Corporation follows the liability method of accounting for deferred income tax whereby deferred income tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying values in the consolidated financial statements. Deferred income tax assets and liabilities are determined using income tax rates that are both expected to apply when the deferred income tax asset or liability will be settled and that have been enacted or substantively enacted as at the date of the consolidated statement of financial position. 

