ORBIT GAR ANT DRILLING INC. NOTES TO THE CONSOLID A TED FINANCIAL ST A TEMENTS (Continued) (Amounts as at March 31, 2008 and for the nine and three months ended March 31, 2008 and for the six and three months ended March 31, 2007 are unaudited) 4. SIGNIFIC ANT ACCOUNTING POLICIES (Continued) A vailable-for-sale financial assets that do not have quoted market prices in an active market are recorded at cost. Interest on interest-bearing available-for-sale financial assets is calculated using the effective interest method. L oans and receivables L oans and receivables are accounted for at amortized cost using the effective interest method. Other liabilities Other liabilities are recorded at amortized cost using the effective interest method and include all financial liabilities, oth er than derivative instruments. T ransaction costs T ransaction costs related to held for trading financial assets are expensed as incurred. T ransaction costs related to available -for-sale financial assets, held-to-maturity financial assets, other liabilities and loans and receivables are netted against the carryin g value of the asset or liability and are then recognized over the expected life of the instrument using the effective interest method. Effective interest method The company uses the effective interest method to recognize interest income or expense which includes transaction costs or fees , premiums or discounts earned or incurred for financial instruments. Cash and cash equivalents Cash and cash equivalents include cash and bank overdraft of which the balance often fluctuates between the available cash amou nt and the indebtedness. Inventories The company maintains an inventory of operating supplies, drill rods and drill bits. Inventories are valued at the lower of cos t and replacement cost. Cost is determined on the first-in, first-out basis. Used inventories are valued at 50% of cost. Investments Investments in companies over which the company exercices significant influence are accounted for using the equity method. The company’s share of income (loss) from these companies is presented in the statement of earnings. Capital assets The capital assets are valued at cost and amortization is calculated using the straight-line method based on their estimated us eful life using the following periods: P arking .................................................................. 1 0 years Buildings ................................................................. 5 t o 2 0 years Office equipment ............................................................ 5 years Drilling equipment ........................................................... 5 t o 1 0 years Machinery and equipment ...................................................... 5 years Computer equipment ......................................................... 3 t o 5 years V ehicles .................................................................. 5 years L easehold improvements ....................................................... 5 years F-13