Cogeco 2010 Annual Report Download - page 53

52 COGECO CABLE INC. 2010 Consolidated Financial Statements
element arrangement and has no standalone value. Accordingly, installation revenue is deferred and amortized at the same pace as
revenue from Cable Television, HSI, Telephony and other telecommunications services are earned;
• Promotional offers are accounted for as deductions from revenue when customers take advantage of such offers.
Amounts received or invoiced that do not comply with these criteria are accounted for as deferred and prepaid revenue.
D) Fixed assets
Fixed assets are recorded at cost. During construction of new assets, direct costs plus a portion of overhead costs are capitalized. Financial
expenses during construction are expensed in the year in which they are incurred. Amortization is recorded mainly on a straight-line basis over
the estimated useful lives over the following periods:
Buildings 10 to 40 years
Cable systems 4 to 15 years
Equipment, programming equipment, furniture and fixtures 3 to 10 years
Home terminal devices 3 to 5 years
Rolling stock and equipment under capital leases 5 years
Other equipment 3 to 10 years
Leasehold improvements Lease term
The Corporation reviews, when a triggering event occurs, the carrying value of its fixed assets by comparing the carrying amount of the asset
or group of assets to the expected future undiscounted cash flows to be generated by the asset or group of assets. An impairment loss is
recognized when the carrying amount of an asset or group of assets held for use exceeds the sum of the undiscounted cash flows expected
from its use and eventual disposal. The impairment loss is measured as the amount by which the asset or group of assets’ carrying amount
exceeds its fair value.
Legal obligations associated with site restoration costs on the retirement of property are recognized in the period in which they can be
reasonably estimated based on currently available information. The obligations are initially measured at fair value and an equal amount is
recorded to fixed assets. Over time, the discounted asset retirement obligations accrete due to the increase in the fair value resulting from the
passage of time. This accretion amount is charged to operating costs. The initial costs are depreciated over the useful lives of the related fixed
assets or the remaining leasehold engagements when applicable. The Corporation does not record an asset retirement obligation in connection
with its cable systems as the Corporation expects to renew all of its agreements with utility companies to access their support structures in the
future, making the retirement date relating to these assets undeterminable.
E) Deferred charges
Deferred charges include reconnect and additional service activation costs and transaction costs. Reconnect and additional service activation
costs are capitalized up to a maximum amount not exceeding the revenue generated by the reconnect activity. Reconnect and additional
service activation costs are amortized over the average life of a customer’s subscription, not exceeding four years. Transaction costs on the
revolving loan and the swingline facility are amortized over the term of the related financing on a straight-line basis.
F) Intangible assets
Intangible assets with finite useful lives, such as customer relationships, are recorded at cost and amortized on a straight-line basis over the
average life of a business customer’s subscription, which is eight years. The Corporation reviews, when a triggering event occurs, the carrying
value of its intangible assets with finite useful lives by comparing the carrying amount of the asset or group of assets to the expected future
undiscounted cash flows to be generated by the asset or group of assets. An impairment loss is recognized when the carrying amount of an
asset or group of assets held for use exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. The
impairment loss is measured as the amount by which the asset or group of assets’ carrying amount exceeds its fair value. Any impairment loss
is charged to earnings in the period in which the loss is incurred.
Intangible assets with indefinite useful lives, such as customer base, are not amortized, but tested for impairment annually or more frequently if
changes in circumstances indicate a potential impairment. In conducting impairment testing, the Corporation compares the carrying value to the
sum of the expected future discounted cash flows. When the impairment test indicates that the carrying amount of the intangible asset exceeds
its fair value, an impairment loss is recognized in an amount equal to the excess. Any impairment loss is charged to earnings in the period in
which the loss is incurred.
G) Goodwill
Goodwill represents the difference between the price paid and the fair value attributed to tangible and intangible assets upon the acquisition of
cable and telecommunications systems. Goodwill is not amortized but tested for impairment annually or more frequently if changes in
circumstances indicate a potential impairment. Goodwill is tested for impairment using a two step approach. The first step consists of
determining whether the fair value of the reporting unit to which goodwill is assigned exceeds the net carrying value of that reporting unit,
including goodwill. In the event that the net carrying amount exceeds the fair value, a second step is performed in order to determine the