Cogeco 2014 Annual Report Download - page 50

MD&A COGECO CABLE INC. 2014 49
ACCOUNTING POLICIES
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of the consolidated financial statements in accordance with IFRS requires management to adopt accounting policies and to make
estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities and revenue and expenses
during the reporting year. A summary of the Corporation's significant accounting policies is presented in Note 2 of the consolidated financial
statements. The following accounting policies were identified as critical to Cogeco Cable's business operations.
REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration received or receivable, net of returns and discounts. The Corporation recognizes
revenue from the sale of products or the rendering of services when the following conditions are met:
The amount of revenue and related costs can be measured reliably;
The significant risks and rewards of ownership have been transferred to customers and there is no continuing management
involvement to the degree usually associated with ownership nor effective control over the goods; and
The recovery of the consideration is probable.
More specifically, the Corporation's principal sources of revenue are recognized as follows:
Monthly subscription revenue for Cable Television, HSI and Telephony services and rental of equipment are recognized as the
services are provided;
Revenue from data services, long-distance and other pay-per-use services are recognized as the services are provided;
Revenue from managed services, colocation services, cloud services and connectivity services are recognized as the services
are provided; and
Revenue generated from the sale of home terminal devices or other equipment is recognized when the customer accepts the
delivery of the equipment.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts is established based on specific credit risk of the Corporation’s customers by examining such factors as the
number of overdue days of the customer’s balance outstanding as well as the customer’s collection history. As a result, conditions causing
fluctuations in the aging of customer accounts will directly impact the reported amount of bad debt expense.
BUSINESS COMBINATIONS
Fair value of assets acquired and liabilities assumed in a business combination is estimated based on information available at date of acquisition
and involves considerable judgment in determining the fair values assigned to the property, plant and equipment and intangible assets acquired
and liabilities assumed on acquisition. Among other things, the determination of these fair values involves the use of discounted cash flow analysis,
estimated future margins and estimated future customer counts.
CAPITALIZATION OF PROPERTY, PLANT AND EQUIPMENT
During construction of new assets, direct costs plus overhead costs directly attributable to the asset are capitalized. Borrowing costs directly
attributable to the acquisition or construction of qualifying assets, which require a substantial amount of time to get ready for their intended use
or sale, are capitalized until such time the assets are substantially ready for their intended use or sale. All other borrowing costs are recorded as
financial expense in the period in which they are incurred.
The cost of replacing a part of property, plant and equipment that is ready for its intended use is added to the carrying amount of the property,
plant and equipment or recognized as a separate component if applicable, only if it is probable that the economic benefits associated with the
cost will flow to the Corporation and the cost can be measured reliably. The carrying amount of the replaced part is derecognized. All other day-
to-day maintenance costs are recognized in profit or loss in the period in which they are incurred.
CAPITALIZATION OF INTANGIBLE ASSETS
Reconnect and additional service activation costs are capitalized up to a maximum amount not exceeding the revenue generated by the reconnect
activity. Direct and incremental costs associated with the acquisition of Enterprise data services customers are capitalized.
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT AND AMORTIZATION OF
INTANGIBLE ASSETS
Measurement of property, plant and equipment and intangible assets with finite useful lives requires estimates for determining the asset expected
useful lives and residual values. Management judgment is required to determine the components and the depreciation method used.