Consolidated Financial Statements and Notes - Brookfield Asset ...

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(q) Hedging Relationship, AcG 13AcG 13 requires the discontinuance of hedge accounting for hedging relationships previously established that do not meet thecriteria at the date it is fi rst applied. AcG 13 does not change the method of accounting for derivatives in hedging relationships, butEIC 128, “Accounting for Trading, Speculative or Non-Hedging Derivative Financial Instruments,” effective when AcG 13 is adopted,requires fair value accounting for derivatives that do not qualify for hedge accounting.(r) Impairment of Long-lived Assets, CICA Handbook Section 3063Section 3063 provides that an impairment loss be recognized when the carrying value of an asset exceeds the total undiscountedcash fl ows expected from its use and eventual disposition. The impairment recognized is measured as the amount by which thecarrying value exceeds its fair value.(s) Use of EstimatesThe preparation of fi nancial statements in conformity with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fi nancialstatements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thoseestimates. Signifi cant estimates are required in the determination of cash fl ows and probabilities in assessing net recoverableamounts and net realizable values, tax and other provisions, hedge effectiveness, and fair values.(t) Cash and Cash EquivalentsCash and cash equivalents include cash on hand, demand deposits and all highly liquid short-term investments with originalmaturities less than 90 days.(u) Changes in Accounting PoliciesEffective January 1, 2005 the company adopted the following new accounting policies, none of which individually or collectivelyhad a material impact on the consolidated fi nancial statements of the company, unless otherwise noted. These changes werethe result of changes to the Canadian Institute of Chartered Accountants (“CICA”) Handbook, Accounting Guidelines (“AcG”) andEmerging Issues Committee Abstracts (“EIC”).(i) Consolidation of variable interest entities, AcG 15Effective January 1, 2005, the company adopted CICA Accounting Guideline (“AcG”) 15, “Consolidation of Variable Interest Entities”without restatement of prior periods. AcG 15 provides guidance for applying the principles in handbook section 1590, “Subsidiaries,”to those entities (defi ned as Variable Interest Entities (“VIEs”)), in which either the equity at risk is not suffi cient to permit that entityto fi nance its activities without additional subordinated fi nancial support from other parties, or equity investors lack voting control,an obligation to absorb expected losses, or the right to share expected residual returns. AcG 15 requires consolidation of VIEs bythe primary benefi ciary, which is defi ned as the party which has exposure to the majority of a VIEs expected losses and/or expectedresidual returns. There was no impact on common equity as a result of implementing the new guidelines.As a result of AcG 15, the company commenced consolidating the accounts of Louisiana HydroElectric, in which the companyholds a 75% residual equity interest. The following table shows the consolidated balances related to Louisiana HydroElectric as atDecember 31, 2005 and 2004.68Brookfield Asset Management | 2005 Annual Report
Book ValueDecember 31 December 31, 2004MILLIONS 2005 If Consolidated ActualAssetsCash and fi nancial assets $ 3 $ 52 $ —Accounts receivables and other 545 608 —Property, plant and equipment 458 474 2441,006 1,134 244LiabilitiesProperty specifi c mortgages 684 636 —Accounts payable and other liabilities 43 210 —Non-controlling interests of others in assets 37 44 —Net assets $ 242 $ 244 $ 244Year EndedDecember 31 December 31, 2004MILLIONS 2005 If Consolidated ActualRevenue less direct operating expensesPower generation $ 112 $ 135 $ 26ExpensesProperty specifi c mortgages 95 88 —Non-controlling interests of net income before the following 6 12 —11 35 26Depreciation, amortization and non-cash taxes (18) (13) —Non-controlling interests in the foregoing items 5 4 —Net income (loss) $ (2) $ 26 $ 26(ii) Liabilities and Equity, CICA Handbook Section 3860Effective January 1, 2005, the company adopted the amendment to CICA Handbook Section 3860, “Financial Instruments: Disclosureand Presentation” with retroactive restatement of prior periods. The amendment requires certain obligations that must or couldbe settled with a variable number of the issuer’s own equity instruments to be presented as a liability. Accordingly, certain of thecompany’s preferred shares and securities that were previously included in equity were reclassifi ed as liabilities under the caption“Capital Securities,” and the dividends paid on these preferred shares were reclassifi ed as interest expense. As a result of thereclassifi cation, preferred equity shares have been translated into U.S. dollars at period-end rates whereas they were previouslytranslated at historical rates of exchange and the resultant impact of changes in the foreign exchange rates have been recorded inincome on a retroactive basis. Similar reclassifi cations were adopted for the preferred equity securities issued by the company’ssubsidiaries. The retroactive adoption of this amendment resulted in a cumulative adjustment to opening retained earnings atJanuary 1, 2004 of $110 million representing the sum of the capital securities issue costs, net of amortization, and the cumulativeimpact to that date of changes in the U.S. dollar equivalent of Canadian denominated capital securities. Net income attributable tocommon shares for the year ended December 31, 2004 was reduced by $93 million refl ecting the foregoing items.(v) Future Accounting Policy ChangesThe following future accounting policy changes may have an impact on the company, although the impact, if any, has not beendetermined at this time.On January 27, 2005, the CICA issued the following three new accounting standards: Handbook Section 1530, “ComprehensiveIncome,” Handbook Section 3855, “Financial Instruments – Recognition and Measurement,” and Handbook Section 3865, “Hedges.”These standards will take effect on January 1, 2007.Brookfield Asset Management | 2005 Annual Report 69
Page 3 and 4: Consolidated Statement of IncomeYEA
Page 6 and 7: (c) Property(i) Commercial properti
Page 8 and 9: Revenue from the sale of homes is r
Page 12 and 13: (i) Comprehensive Income, CICA Hand
Page 14 and 15: (b)Prepaid Expenses and Other Asset
Page 16 and 17: (c) Timberlands and InfrastructureM
Page 18 and 19: Principal repayments on subsidiary
Page 20 and 21: 11. CAPITAL SECURITIESThe company h
Page 22 and 23: During 2005, the company redeemed a
Page 24 and 25: The changes in the number of option
Page 26 and 27: (e) Commodity InstrumentsThe compan
Page 28 and 29: 18. FUTURE INCOME TAXES AND OTHER P
Page 30 and 31: Cash taxes paid were $172 million (
Page 32 and 33: Market value adjustments for tradin
Page 34 and 35: Market value adjustments in other c
Page 36 and 37: (v) Common equityMILLIONS 2005 2004
Page 38: Revenue, net income and assets by r

Consolidated Financial Statements and Notes - Brookfield Asset ...

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