NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS using the unit of production method. Assuming a 10% difference in the actual useful lives of drilling rigs  compared to the accounting estimate of useful life and based upon actual drilling days achieved for the year  ended December 31, 2013, drilling rig depreciation could be either increased or decreased by $2,238,000  (2012 - $1,940,000). AKITA’s depreciation expense does not have any effect on the changes to the financial  condition for the Company, as depreciation is a non-cash item. At each reporting date, the Company assesses whether there is objective evidence that a financial asset is  impaired. If such evidence exists, the Company measures and recognizes an impairment loss calculated as  the difference between the amortized cost of the asset and the present value of the estimated future cash  flows, discounted at the financial asset’s original effective interest rate. The carrying amount of the asset  is reduced by this amount. AKITA’s asset impairment estimates do not have any effect on the changes to  the financial condition for the Company, as any asset write-down would be a non-cash item. However, total  assets and results of operations including net income could be either overstated or understated as a result of  projections of discounted future cash flows. A significant estimate used in the preparation of AKITA’s financial statements relates to the measurement of  the defined benefit pension liability for selected employees that was recorded as $2,556,000 at December  31, 2013 (December 31, 2012 - $2,348,000). AKITA’s pension liability estimates do not have any effect on  the changes to financial condition for the Company, as the defined benefit pension is an unfunded non-cash  item. However, total liabilities and results of operations including net income could be either understated or  overstated as a result of pension estimates that are either too high or too low. AKITA utilizes the services of a  third party to assist in the actuarial estimate of the Company’s pension expense and liability. For 2013, a key  assumption relates to the use of a 4.7% (2012 – 4.0%) discount rate. From the perspective of a sensitivity  analysis, a 1% increase in the discount rate would result in a $340,000 increase in the defined benefit  obligation while a 1% decrease in the discount rate would result in a $415,000 decrease in the defined benefit  obligation. Except for the impact on the discount rate used in the pension assumptions, recent changes in  the global economy and related markets have not otherwise affected the recording of the Company’s defined  benefit pension liability. This pension is an unfunded liability of the Company. The Company makes assumptions relating to the measurement of deferred income taxes, including related  to future tax rates, timing of reversals of timing differences and the anticipated tax rules that will be in place  when timing differences reverse. Consequently, total liabilities of the Company as well as results of operations  including net income could be either understated or overstated. 4. Capital Disclosures Capital management The Company has determined capital to include long-term debt and share capital. The Company’s objectives  when managing capital are: •  to safeguard the Company’s ability to continue as a going concern, so that it can continue to  provide returns for shareholders and benefits for other stakeholders, and •  to augment existing resources in order to meet growth requirements. The Company manages the capital structure and makes adjustments to it in light of changes in economic  conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital  structure, the Company may adjust the amount of dividends paid to shareholders, repurchase shares, issue  new shares or sell assets. 46 AKITA DRILLING LTD.  ANNUAL REPORT