2015-16 SaskEnergy Annual Report

3. Summary of significant accounting policies (continued)

ii. Level 2 Inputs are other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability as at the reporting date. Level 2 valuations are based on inputs, including quoted market prices, time value, volatility factors and broker quotations which can be substantially observed or corroborated in the marketplace. The fair value of debt retirement funds is determined by Saskatchewan’s Ministry of Finance using a market approach with information provided by investment dealers. To the extent possible, valuations reflect indicative secondary pricing for these securities. In all other circumstances, valuations are determined with reference to similar actively traded instruments. The fair value of natural gas derivative instruments is determined using a market approach. The Corporation obtains quoted market prices from sources such as the New York Mercantile Exchange and the Natural Gas Exchange, independent price publications and over-the-counter broker quotes. The fair value of long-term debt is determined for disclosure purposes only using an income approach. Fair values are estimated using the present value of future cash flows discounted at the market rate of interest for the equivalent Province of Saskatchewan debt instruments. iii. Level 3 Inputs are unobservable for the particular assets and liabilities as at the reporting date. The Corporation did not classify any of its fair value measurements within Level 3. Intangible assets Intangible assets, which include computer software and mineral rights, are recorded at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are capitalized if it is probable that the asset acquired or developed will generate future economic benefits. The costs incurred to establish technological feasibility or to maintain existing levels of performance are recognized in operating and maintenance expense as incurred. Cost includes expenditures that are directly attributable to the acquisition or development of the asset. The cost of self- developed assets includes materials, services, direct labour and directly attributable overheads. Borrowing costs associated with major projects are capitalized during the development period. Major projects (or qualifying assets) are those projects that are under development for a period greater than six months. Assets under development are recorded as in progress until they are available for use. Amortization of computer software is based on the cost of the asset and is calculated using the straight-line method over the estimated useful life of the asset from the date the asset is available for use. The amortization rates range from 10.0% to 20.0% annually. The estimated useful lives, residual values and method of amortization are reviewed annually for reasonableness. Amortization (or depletion) of mineral rights and prepaid royalties is calculated using the unit of production method based on estimated proven and probable reserves. Depletion is considered a cost of natural gas in storage when the natural gas is produced. When the natural gas in storage is sold the depletion is charged to depreciation and amortization expense. The estimated proven and probable reserves, residual values and method of depletion are reviewed annually for reasonableness.



Consolidated Financial Statements

Made with FlippingBook Ebook Creator