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) Assets under capital leases Assets under capital leases are accounted for at cost. Amortization is calculated using the straight-line method over a 5 year period. Goodwill Goodwill representing the excess of purchase price over fair value of the net identifiable assets of acquired businesses is tes ted for impairment annually or more frequently when an event or circumstance occurs that indicates that goodwill might be impaired. Whe n the carrrying amount exceeds the fair value, an impairment loss is recognized in the statement of earnings in an amount equal t o the excess. Intangible assets Intangible assets are accounted for at cost. Amortization is based on their estimated useful life using the straight-line metho d and the following periods: Customer relationship .......................................................... 4 2 months Non-compete agreement ......................................................... 5 years Impairment of long-lived assets L ong-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized when their carrying value exceeds the total undiscounted cash flows expected f rom their use and eventual disposition. The amount of the impairment loss if any is determined as the excess of the carrying value of the asset over its fair value. 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. F oreign currency translation a) Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. R evenues and expenses are translated at average rates for the period except for amortization, which is translated at historical rates. T ranslation gains or losses are included in earnings. b) Monetary assets and liabilities related to integrated foreign operation and accounts are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. R evenues and expenses are trans lated at average rates for the period except for amortization that is translated at historical rates. T ranslation gains or losses are included in earnings. R evenue recognition R evenue from drilling contracts is recognized on the basis of actual meterage drilled for each contact. R evenue from ancillary services is recorded when the service is rendered. The company recognizes revenue when persuasive evidence of an arrangement exists, servic e has been rendered, the price to the buyer is fixed or determinable and collection is reasonably assured. Earnings per share Earnings per share are calculated using the weighted daily average number of shares outstanding during the period. F-14