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 3522018 3962019 3635220 Other 12364 49409 234694 3534382 4011428 3869914 5 C APIT AL AS SETS Net book value Accumulated September 30 Cost amortization 2006 L a n d 50001 50001 P arking 33192 33192 Buildings 664980 394804 270176 Office equipment 102250 93182 9068 Drilling equipment 6360138 4381383 1978755 Machinery and equipment 107229 85179 22050 Computer equipment 105285 89025 16260 V ehicles 1547066 953659 593407 8970141 6030424 2939717 F50