Tucows 2013 Annual Report Download - page 82

(b) Use of estimates
The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those
related to amounts recognized for or carrying values of revenues, bad debts, goodwill and intangible assets which require
estimates of future cash flows and discount rates, income taxes, contingencies and litigation, and estimates of credit spreads
for determination of the fair value of derivative instruments. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances at the time they are made. Under
different assumptions or conditions, the actual results will differ, potentially materially, from those previously estimated.
Many of the conditions impacting these assumptions and estimates are outside of the Company’s control.
(c) Cash and cash equivalents
All highly liquid investments, with an original term to maturity of three months or less are classified as cash and
cash equivalents.
(d) Inventory
Inventory primarily consists of mobile devices and other accessories, and is stated at the lower of cost or net
realizable value. Cost is determined based on actual cost of the mobile device or accessory shipped.
The net realizable value of inventory is analyzed on a regular basis. This analysis includes assessing obsolescence,
sales forecasts, product life cycle, marketplace and other considerations. If assessments regarding the above factors adversely
change, we may be required to write down the value of inventory.
F-8
(e) Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided on a straight-
line basis so as to depreciate the cost of depreciable assets over their estimated useful lives at the following rates:
Asset
Rate
Computer equipment
30
%
Computer software
100
%
Furniture and equipment
20
%
Leasehold improvements
Over term of
lease
The Company reviews the carrying values of its property and equipment for potential impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated
undiscounted future cash flows expected to result from the use of the group of assets and its eventual disposition is less than
its carrying amount, it is considered to be impaired. The amount of the impairment loss recognized is measured as the amount
by which the carrying value of the asset exceeds the fair value of the asset, with fair value being determined based upon
discounted cash flows or appraised values, depending on the nature of the assets.
(f) Goodwill and Intangible assets
Goodwill represents the excess of purchase price over the fair values assigned to the net assets acquired in business
combinations. Finite life intangible assets, related to the acquisition of EPAG Domainservices GMBH (“EPAG”) in
August 2011, are being amortized on a straight-line basis over periods of two to seven years, and consist of technology,
brand and customer relationships. Finite life intangible assets, related to the acquisition of Innerwise, Inc. in July 2007, are
being amortized on a straight-line basis over periods of five to seven years, and consist of brand and customer relationships.
Indefinite life intangible assets, acquired in the acquisition of Mailbank.com Inc. in June 2006, consist of surname domain
names and direct navigation domain names.
The Company does not amortize goodwill and indefinite life intangibles, but tests for impairment annually or more
frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. The
Company reviews goodwill at least annually for possible impairment in the fourth quarter of each year.