2015_LCC Annual Report

PRINCE EDWARD ISLAND LIQUOR CONTROL COMMISSION Notes to Financial Statements March 31,2015

Summary of Significant Accounting Policies (continued...)

3.

h) Finance Leases

A property lease is classified as a finance lease if it transfers substantially all of the risks and rewards of ownership to the lessee. The Commission currently leases three such properties that are required to be set up as a leased property asset and an obligation under finance lease liability based on lAS 17 Leases. The values of finance lease assets and liabilities are determined using the lower of the net present value of future lease payments and the estimated fair market value of property leased. The estimated fair market value is calculated using an income based approach which converts expected future income of the property to present market value using market established capitalization rates. The asset is then amortized over the useful life of the asset and the liability over the life of the lease, which includes all renewal options. The Commission’s amortization policy has been disclosed in Note 3(f). The liability is amortized using the effective interest rate method. Lease payments made during the year are allocated to interest on finance leases and a reduction in the obligation under finance leases. The Commission’s objective when managing capital is to keep minimal capital on hand. This objective is achieved by accruing all comprehensive income to the Province of Prince Edward Island and transferring it on a continuous basis as excess capital becomes available. j) Cash Cash consists of cash on hand and amounts on deposit with financial institutions. i) Capital Management

k) Accounts Receivable, Accounts Payable and Accrued Liabilities

Accounts receivable are recorded at cost less any provision when collection is in doubt. Accounts payable and accrued liabilities are recorded for all amounts due for work performed and goods or services received during the fiscal year.

4.

Significant Accounting Judgements and Estimates

The preparation of financial statements requires management to make estimates, judgements, and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. The actual results may materially differ from management’s estimation, Items requiring the use of significant estimates include property, plant, and equipment carried at $6,409,164 (2014 - $6,816,207), accrued liabilities of $469,554 (2014 - $554,955), standard inventory freight rates of $223,764 (2014 - $227,546) and obligations under finance leases of $1,373,396 (2014 - $1,047,450).