Orbit Garant 2012 annual rep O rt 25 Reconciliation of Canadian GAAP to IFRS IFRS uses a conceptual framework which is similar to the Canadian GAAP. But there are i mportant differences that exist in certain standards evaluation and disclosure. Though the adoption of IFRS did not change the Company’s cash fow, it did bring changes to the Company’s balance sheets and the activity results. In order to allow the fnancial statement users to better understand these c hanges, to the Company’s consolidated balance sheet, consolidated statement of earnings and comprehensive earnings prepared accordi ng to Canadian GAAP were restated according to the IFRS Standards at different dates and the differences in the statements are explai ned, as required by IFRS 1. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND J UDGMENTS Estimates, assumptions and judgments are continually evaluated by the Company and are based on historical experienc e and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates, assumptions and judgments concerning the future. Actual results could differ from these estimates . The estimates, assumptions and judgments that have a risk of causing a material adjustment to the carrying amounts of assets and li abilities within the next fnancial year, are addressed below. Inventories Inventory is measured at the lower of cost and net realizable value. In estimating net realizable values, management takes i nto account the most reliable evidence available at the time the estimates are made. Net realizable value is the estimated selling price less the estimated cost necessary to make the sale. Used and revised inventories are valued at 50% and 75% of cost respectively. The amount of the depreciation of inventories can be reversed when the circumstances that led to the impairment charge in the past no longer exis ts. Useful lives of depreciable assets Amortization methods, residual values and useful lives of property, plant and equipment are reviewed at each reporting date by the management. Any changes are accounted for prospectively as a change in accounting estimate. As at June 30, 2012, management assesses that the useful lives represent the expected utility of the assets to the Company. Business combinations On initial recognition, the assets and liabilities of the acquired business are included in the consolidated balance s heet of the Company at their fair values. In measuring fair value, management uses estimates about future cash fows and discount rates , however, the actual results may vary. Any measurement changes upon initial recognition would affect the measurement of Goodwill. Estimated impairment of Goodwill The Company tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in s ummary of signifcant accounting policies. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. Current income taxes The Company is subject to income taxes in various jurisdictions. Judgement is required in determining the worldwide provisi on for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recogni zes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due i n the future. Where the fnal tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the c urrent and deferred income tax assets and liabilities in the period in which such determination is made. Management periodically evaluates positi ons taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It established provi sions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income taxes The assessment of the probability of future taxable income in which deferred tax assets can be utilized is based on the Company ’s latest approved budget forecast, which is adjusted for signifcant non-taxable income and expenses and specifc limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the Company operates are also carefully taken into c onsideration. If a forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilized wi thout a time limit, that deferred tax asset is usually recognized in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by Management based on the specifc facts and circumstances.