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 Diluted earnings per share are determined as net earnings divided by the weighted average number of diluted common shares for t he period Diluted common shares reflect the potential dilutive effect of exercising the stock options based on the treasury stock method Stock options The company uses the fair value method to account for stock options In accordance with this method compensation cost is measu red at the fair value of the option at the grant date and is amortized to earnings over the vesting period 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 purchase price allocation related to business acquisitions income an d other taxes amounts recorded as accrued liabilities and stockbased compensation F uture accounting changes a Inventories In June 2007 the Canadian Institute of Chartered A ccountants CICA issued Section 3031 Inventories replacing Section 30 30 Inventories The new Section will be applicable to financial statements relating to fiscal years beginning on or after January 1 2008 A ccordingly the company will adopt the new standards for its fiscal year beginning July 1 2009 It provides more guidance on the measurement and disclosure requirements for inventories F or example it requires that fixed and variable production overheads be systematically allocated to the carrying amount of inventory The company does not expect that the adoption of this new Sectio n will have a material impact on its consolidated financial statements b Financial instruments In December 2006 the CICA issued Section 3862 Financial Instruments Disclosures Section 3863 Financial Instruments P resentation and Section 1535 Capital Disclosures All three Sections will be applicable to financial statements relating to fiscal years beginning on or after October 1 2007 A ccordingly the company will adopt the new standards for its fiscal year beginning July 1 2008 Section 3862 on financial instruments disclosures requires the disclosure of information about a the significance of financi al instruments for the entitys financial position and performance and b the nature and extent of risks arising from financial in struments to which the entity is exposed during the period and at the balance sheet date and how the entity manages those risks Section 3863 on the presentation of financial instruments is unchanged from the presentation requirements included in Section 3861 Section 153 5 on capital disclosures requires the disclosure of information about an entitys objectives policies and processes for managing ca pital The company does not expect that the adoption of these new Sections will have a material impact on its consolidated financial statements c Goodwill and intangible assets In F ebruary 2008 the Canadian Institute of Chartered A ccountants CICA issued Section 3064 Goodwill and intangible asset s replacing Section 3062 Goodwill and other intangible assets and Section 3450 R esearch and development costs V arious changes have been made to other sections of the CICA Handbook for consistency purposes The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1 2008 A ccordingly the company will adopt the new standard s for its fiscal year beginning July 1 2009 It establishes standards for the recognition measurement presentation and disclosure of g oodwill subsequent to its initial recognition and of intangible assets by profitoriented enterprises Standards concerning goodwill ar e unchanged from the standards included in the previous Section 3062 The company does not expect that the adoption of this new Section will have a material impact on its consolidated financial statements F15