The embedded derivatives are classified at fair value through profit and loss ("FVTPL"). They have been valued using the option adjusted spread ("OAS") model, which requires management to make judgements, estimates and assumptions. They are valued at fair value upon initial recognition and at the end of each reporting period with gains and losses recognized through finance charges in the consolidated statement of operations.
Transaction costs incurred with respect to the credit facility are deferred and amortized using the straight-line method over the term of the facility. The asset is recognized in prepaid expenses and other on the balance sheet while the amortization is included in financing charges within net income. Transaction costs associated with other financial liabilities are netted against the related liability.
o) Functional and presentation currency
Each of the Corporation's subsidiaries is measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Canadian dollars, which is the Corporation's functional currency.
Upon consolidation, the financial statements of the subsidiary that have a functional currency different from that of the Corporation are translated into Canadian dollars whereby assets and liabilities are translated at the rate of exchange at the balance sheet date, revenues and expenses are translated at average monthly exchange rates (as this is considered a reasonable approximation of actual rates), and gains and losses in translation are recognized in the shareholders' equity section as accumulated other comprehensive income.
Effective December 31, 2011, the functional currency of Newalta's United States subsidiary changed from the Canadian dollar to the United States dollar as a result of changes in its economic circumstances.
If the Corporation were to dispose of its entire interest in a foreign operation, or to lose control, joint control, or significant influence over a foreign operation, the foreign currency gains or losses accumulated in other comprehensive income related to the foreign operation would be recognized in net earnings. If the Corporation were to dispose of part of an interest in a foreign operation which remains a subsidiary, a proportionate amount of foreign currency gains or losses accumulated in other comprehensive income related to the subsidiary would be reallocated between controlling and non-controlling interests.
p) Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. A qualifying asset is an asset that requires a period of six months or greater to get ready for its intended use or sale.
q) Critical judgments and estimate uncertainties in applying accounting policies
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, 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.
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