CRITICAL ACCOUNTING ESTIMATES
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Such estimates relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts as transactions are settled in the future. Amounts recorded for amortization, accretion, future decommissioning obligations, embedded derivatives, deferred income taxes, valuation of warrants and impairment calculations are based on estimates. By their nature, these estimates are subject to measurement uncertainty, and the impact of the difference between the actual and the estimated costs on the financial statements of future periods could be material.
Recoverability of Asset Carrying Values
Newalta assesses its property, plant and equipment, intangibles and goodwill for impairment at the cash generating unit ("CGU") level by comparing the carrying amount to the recoverable amount of the underlying assets. Judgment is required in the aggregation of assets into CGU's. The determination of the recoverable amount involves estimating the CGU's fair value less costs to sell or its value-in-use, which is based on its discounted future cash flows using an applicable discount rate. Future cash flows are calculated based on management's best estimate of future inflation and are discounted based on management's current assessment of market conditions.
Our determination, as at December 31, 2012, was that there was no impairment.
Newalta recognizes a provision for future remediation and post abandonment activities in the consolidated financial statements as the net present value of the estimated future expenditures required to settle the estimated future obligation at the balance sheet date. The recorded liability increases over time to its future amount through unwinding of the discount. The measurement of the decommissioning liability involves the use of estimates and assumptions including the discount rate, the expected timing of future expenditures and the amount of future abandonment costs. Decommissioning estimates are reviewed annually and estimated by management, in consultation with Newalta's engineers and environmental, health and safety staff, on the basis of current regulations, costs, technology and industry standards.
Revisions to the estimated amount or timing of the obligations are reflected prospectively as increases or decreases to the recorded liability and the related asset. Actual decommissioning expenditures, up to the recorded liability at the time, are drawn against the liability as the costs are incurred. Amounts capitalized to the related assets are amortized to income in line with the depreciation of the underlying asset.
Fair Value Calculation on Share-Based Payments and Stock Appreciation Rights
We have two share-based compensation plans: the 2006 Option Plan and the 2008 Option Plan (collectively the "Option Plans"). Under the Option Plans, we may grant to directors, officers, employees and consultants of Newalta or any of its affiliates, options to acquire up to 10% of the issued and outstanding shares.
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