FOR AGES GAR ANT & FR ` ERES INC. NOTES TO THE FINANCIAL ST A TEMENTS (Continued) 3. SIGNIFIC ANT ACCOUNTING POLICIES (Continued) Earnings per share Earnings per share are calculated using the weighted daily average number of shares outstanding during the year. Diluted earnings per share are determined as net earnings divided by the weighted average number of diluted common shares for t he year. Diluted common shares reflect the potential dilutive effect of exercising the stock options based on the treasury stock m ethod. Income taxes The company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recorded to account for future tax effects of differences between the value of the assets and liabilities on th e balance sheet and their tax values, by using the tax rates in effect for the year during which the differences are expected to reverse. Manag ement reduces the carrying value of the future income tax assets by a valuation allowance when it is more likely than not that some p ortion of the asset will not be realized. Stock options The options can be settled in cash and the compensation cost is measured using the excess of the fair value of the shares of th e company on the exercise price of the exercisable options. Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires managemen t to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting perio d. A ctual results could differ from these estimates. Significant areas requiring the use of management estimates relate to the useful lives of capital assets for amortization purpo ses, inventory valuation, determination of bad debt allowance, income and other tax, amounts recorded as accrued liabilities and sto ck- based compensation. 4. ACCOUNTS RECEIV ABLE June 30, September 30, 2006 2006 2005 $$$ T rade ............................................. 3,522,018 3,962,019 3,635,220 Other ............................................. 12,364 49,409 234,694 3,534,382 4,011,428 3,869,914 5. C APIT AL AS SETS Net book value Accumulated September 30, Cost amortization 2006 $$$ L a n d .............................................. 50,001 — 50,001 P arking ............................................ 33,192 33,192 — Buildings ........................................... 664,980 394,804 270,176 Office equipment ...................................... 102,250 93,182 9,068 Drilling equipment ..................................... 6,360,138 4,381,383 1,978,755 Machinery and equipment ................................ 107,229 85,179 22,050 Computer equipment ................................... 105,285 89,025 16,260 V ehicles ............................................ 1,547,066 953,659 593,407 8,970,141 6,030,424 2,939,717 F-50