Financial Statements and Notes - Canadian Oil Sands

Inventories
Product inventories are valued at the lower of the average cost of production for the period and their
net realizable value. Materials and supplies inventories are valued at the lower of average cost and
replacement cost.
Future reclamation and site restoration costs
Estimated future reclamation and site restoration costs are provided for on the unit-of-production
method based on estimated proved reserves. Provisions for future reclamation and site restoration
costs are included in depreciation and depletion expense in the Consolidated Statements of Income
and Unitholders’ Equity. Actual costs are charged against the accumulated provision when incurred.
Derivative financial instruments
Canadian Oil Sands enters into foreign currency exchange rate, crude oil and natural gas price contracts
to hedge fluctuations in exchange rates, and the prices of crude oil and natural gas. Gains and losses
on forward contracts are deferred and recognized as a component of the related transaction. Crude
oil and foreign currency hedging gains and losses are included in Syncrude Sweet Blend (SSB) revenues
as they are incurred. As natural gas is used in the production of SSB, any natural gas hedging gains
and losses are included in Operating expenses.
Canadian Oil Sands has also entered into interest rate swap agreements to manage its interest rate
risk. The gains and losses arising from these instruments are included in interest expense.
Revenues
Revenues from the sale of SSB are recorded when title passes from Canadian Oil Sands to its customer.
Revenues are recorded net of hedging gains and losses from foreign currency exchange rate and crude
oil price contracts.
Employee future benefits
Canadian Oil Sands accrues its obligations under Syncrude’s employee benefit plans and the related
costs, net of plan assets. The cost of employee pension and other retirement benefits is actuarially
determined using the projected benefit method based on length of service and reflects management’s
best estimate of the expected performance of the plan investment, salary escalation factors, retirement
ages of employees and future health care costs. The expected return on plan assets is based on the
fair value of those assets. Past service costs from plan amendments are amortized on a straight-line
basis over the estimated average remaining service life of active employees (EARSL) at the date of
amendment. The excess of any net actuarial gain or loss exceeding 10 per cent of the greater of the
benefit obligation and fair value of the plan assets is amortized over the EARSL (Note 7(a)).
Future income taxes
Canadian Oil Sands follows the liability method of accounting for income taxes. Under this method,
future income taxes of operating corporations are calculated as the difference between the accounting
and income tax basis of an asset or liability, referred to as temporary differences, tax effected using
substantively enacted income tax rates. Future income tax balances recorded on the Consolidated
Balance Sheet are adjusted to reflect changes in temporary differences and income tax rates with
the adjustments being recognized in net income in the period that the changes occur.
Canadian Oil Sands Trust Annual Report 2003