The Company performed the annual impairment test of goodwill and intangible assets allocated to Toromont CAT as at December 31, 2012. The recoverable amount of Toromont CAT has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a three-year period. Cash flow beyond the three-year period was extrapolated using a 2% growth rate which represents the expected growth in the Canadian economy. The pre-tax discount rate applied to cash flow projects is 10.8%. As a result of the analysis, management did not identify impairment for this CGU.
The Company performed the annual impairment test of goodwill allocated to CIMCO as at December 31, 2012. The recoverable amount of CIMCO has been determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a three-year period. Cash flow beyond the three-year period was extrapolated using a 2% growth rate which represents the expected growth in the Canadian economy. The pre-tax discount rate applied to cash flow projects is 12.7%. As a result of the analysis, management did not identify impairment for this CGU.
Key Assumption Used in Value in Use Calculations
The calculation of value in use for Toromont CAT and CIMCO are most sensitive to the following assumptions:
-- Discount rates-- Growth rate to extrapolate cash flows beyond the budget period
Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate is derived from the CGU's weighted-average cost of capital, taking into account both debt and equity. The cost of equity is derived from the expected return on investment by the Company's shareholders. The cost of debt is based on the interest-bearing borrowings the Company is obliged to service. Segment-specific risk is incorporated by applying different debt to equity ratios.
Growth rate estimates are based on published data and were used as a conservative estimate of future growth.
Sensitivity to Changes in Assumptions
Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of either unit to materially exceed its recoverable amount.
8.PAYABLES, ACCRUALS AND PROVISIONS
2012 2011----------------------------------------------------------------------------Accounts payable and accrued liabilities $ 183,361 $ 263,544Dividends payable 9,165 8,433Provisions 10,942 8,758---------------------------------------------------------------------------- $ 203,468 $ 280,735--------------------------------------------------------------------------------------------------------------------------------------------------------
Activities related to provisions were as follows:
Warranty Other Total----------------------------------------------------------------------------Balance as at December 31, 2011 $ 5,132 $ 3,626 $ 8,758New provisions 6,728 1,036 7,764Charges/credits against provisions (5,283) (297) (5,580)----------------------------------------------------------------------------Balance as at December 31, 2012 $ 6,577 $ 4,365 $ 10,942-------------------------------------------------------------------------------------------------------------------------------------------------------- Warranty Other Total----------------------------------------------------------------------------Balance as at December 31, 2010 $ 4,812 $ 2,012 $ 6,824New provisions 5,286 1,927 7,213Charges/credits against provisions (4,966) (313) (5,279)----------------------------------------------------------------------------Balance as at December 31, 2011 $ 5,132 $ 3,626 $ 8,758--------------------------------------------------------------------------------------------------------------------------------------------------------
