Cogeco 2004 Annual Report Download - page 32

30 Cogeco Cable Inc. 2004
1SIGNIFICANT ACCOUNTING POLICIES
a) Nature of operations
Cogeco Cable Inc. (the “Corporation”) is a Canadian public company whose shares are listed on the Toronto Stock Exchange. The Corporation’s
core business is providing cable television services and high-speed Internet access.
b) Principles of consolidation
The consolidated financial statements include the accounts of the Corporation and its subsidiaries. Business acquisitions are accounted
for under the purchase method and operating results are included in the consolidated financial statements as of the date of the acquisition
of control. Other investments are recorded at cost.
c) Recent accounting pronouncements and changes in accounting policies
i) Amortization of long-term assets
Effective September 1, 2003, the Corporation reviewed the useful life of its decoders and modems, commonly referred to as home terminal
devices, and of certain other long-term assets. The useful life of decoders was changed from seven to five years while the useful life of
modems was changed from seven to three years. These changes in accounting estimates, applied prospectively, increased amortization
expense by $20.1 million for the year ended August 31, 2004.
ii) Impairment of long-lived assets
In December 2002, the Canadian Institute of Chartered Accountants (“CICA”) issued Handbook section 3063, Impairment of long-lived
assets which modifies existing guidance on long-lived assets impairment measurements and establishes standards for the recognition,
measurement and disclosure of the impairment of long-lived assets. The new standards require that an impairment loss be recognized
when the carrying amount of an asset exceeds the sum of the undiscounted cash flow expected from this asset. An impairment loss
is measured as the amount by which the carrying amount of the asset exceeds its fair value. The Corporation applied these new recom-
mendations effective September 1, 2003, and concluded that no impairment existed.
iii) Stock-based compensation and other stock-based payments
On September 1, 2003, the Corporation early adopted the recommendations of the CICA Handbook section 3870, Stock-based Compen-
sation and Other Stock-based Payments, which defines, among other things, recognition, measurement and disclosure standards
for stock-based compensation. The standard requires the Corporation to use a fair value based method for all options granted. The
Corporation, as permitted by CICA Handbook section 3870, has chosen to apply the new recommendations on a prospective basis. Prior
to September 1, 2003, the Corporation accounted for stock-based compensation by measuring compensation cost for employee stock
options as the excess, if any, of the quoted market price of the subordinate voting shares at the date of grant over the amount an
employee must pay to acquire these shares, and included in the notes to the financial statements pro forma disclosures of net income
and earnings per share as if the fair value method of accounting had been applied. Any consideration paid by employees on exercise
of stock options was credited to capital stock. Effective September 1, 2003, the Corporation adopted the fair value based method and
began accounting for stock options by measuring the compensation cost for options granted on or after September 1, 2003 by using the
Binomial option pricing model. As a result of applying these new recommendations, a compensation expense of $238,000 was recorded
for the year ended August 31, 2004. Supplementary information required under the new recommendations is presented in note 9.
iv) Hedging relationships
In December 2001, the CICA issued Accounting Guideline 13 (“AcG-13”), Hedging relationships, which establishes the criteria for iden-
tification, documentation and effectiveness of hedging relationships for the purpose of applying hedge accounting. The Emerging Issues
Committee also issued in June 2002, EIC-128, Accounting for trading speculative or non-hedging derivative financial instruments, which
establishes that a derivative financial instrument that does not qualify for hedge accounting under AcG-13 should be recognized on the
balance sheet at fair value, with changes in fair value recognized in net income. The Corporation adopted the recommendations of AcG-13
on September 1, 2003. Since the Corporation is in compliance with the requirements of AcG-13 for its derivative financial instruments,
the adoption of these new recommendations had no impact on the Corporation’s consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended August 31, 2004 and 2003