Crocotta Energy Inc.
Notes to the Consolidated Financial Statements Year Ended December 31, 2012
(Tabular amounts in 000s, unless otherwise stated)
1. REPORTING ENTITY
Crocotta Energy Inc. ("Crocotta" or the "Company") is an oil and natural gas company, actively engaged in the acquisition, development, exploration, and production of oil and natural gas reserves in Western Canada. The Company conducts many of its activities jointly with others and these consolidated financial statements reflect only the Company's proportionate interest in such activities. The Company currently has one wholly-owned subsidiary.
The Company's place of business is located at 700, 639 - 5th Avenue SW, Calgary, Alberta, Canada, T2P 0M9.
2. BASIS OF PRESENTATION
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").
The consolidated financial statements were authorized for issuance by the Board of Directors on March 25, 2013.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for risk management contracts, which are measured at fair value. The methods used to measure fair value are discussed in note 4.
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company's functional currency.
(d) Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and use judgment regarding the reported amounts of assets and liabilities as at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. These judgments, estimates, and assumptions are based on current trends and all relevant information available to the Company at the time of preparation of the consolidated financial statements. As the effect of future events cannot be determined with certainty, the actual results may differ from the estimated amounts.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Significant estimates and judgments made by management in the preparation of these consolidated financial statements are outlined below.
Critical accounting judgments
The following are critical judgments that the Company has made in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.
Cash generating units ("CGU")
The Company's assets are aggregated into CGUs for the purposes of calculating depletion and depreciation and impairment. CGUs are determined based on the smallest group of assets that generate cash flows independent of other assets or groups of assets. Determination of the CGUs is subject to the Company's judgment and is based on geographical proximity, shared infrastructure, similar exposure to market risk, and materiality.
Judgments are required to assess when impairment indicators exist and impairment testing is required. In determining the recoverable amount of assets, in the absence of quoted market prices, impairment tests are based on estimates of reserves, production rates, future oil and natural gas prices, future costs, discount rates, market value of land, and other relevant assumptions.
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