Sprott Physical Silver Trust Notes to the Annual Financial Statements  December 31, 2014 (iii) Other financial liabilities (iv) Unitholder’s Capital Classification of redeemable units 3. Significant Accounting Judgments, Estimates and Assumptions (v) Fees and commission expenses (vii) Functional and presentation currency Judgments This category includes all financial liabilities, other than those classified at fair value through profit and loss. The Trust includes in this  category management fees payable, due to brokers and other accounts payable. Redeemable units are classified as equity instruments when: In addition to the redeemable units having all the above features, the Trust must have no other financial instrument or contract that has: The Trust continuously assesses the classification of the redeemable units. If the redeemable units cease to have all the features or meet all the  conditions set out to be classified as equity, the Trust will reclassify them as financial liabilities and measure them at fair value at the date of  reclassification, with any differences from the previous carrying amount recognised in equity. Fees and commission expenses are recognized on an accrual basis. In each taxation year, the Trust will be subject to income tax on taxable income earned during the year, including net realized taxable capital  gains. However, the Trust intends to distribute its taxable income to unitholders at the end of every fiscal year and therefore the Trust itself  would not have any income tax liability. The Trust’s functional and presentation currency is the U.S. Dollar. The Trust’s performance is evaluated and its liquidity is managed in  U.S. Dollars. Therefore, the U.S. Dollar is considered as the currency that most faithfully represents the economic effects of the underlying  transactions, events and conditions. The preparation of the Trust’s financial statements requires the Manager to make judgments, estimates and assumptions that affect the amounts  recognized in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that may require  a material adjustment to the carrying amount of the asset or liability affected in future periods. In the process of applying the Trust’s accounting policies, management has made the following judgments, which have the most significant  effect on the amounts recognized in the financial statements: (vi) Income taxes 16 • Total cash flows based substantially on the profit or loss, the change in the recognized net assets or the change in the fair value  of the recognized and unrecognized net assets of the Trust; and • The effect of substantially restricting or fixing the residual return to the redeemable unitholders. • The units entitle the holder to a  pro rata share of the Trust’s net assets in the event of the Trust’s liquidation; • The redeemable units are in the class of instruments that is subordinate to all other classes of instruments; • All redeemable units in the class of instruments that is subordinate to all other classes of instruments have identical features; • The redeemable units do not include any contractual obligation to deliver cash or another financial asset other than the holder’s  rights to a  pro rata share of the Trust’s net assets; and • The total expected cash flows attributable to the redeemable units over the life of the instrument are based substantially on the  profit or loss, the change in the recognized net assets or the change in the fair value of the recognized and unrecognized net assets of the Trust over the life of the instrument.