H&R REAL ESTATE INVESTMENT TRUST  H&R FINANCE TRUST  Notes to Combined Financial Statements   (In thousands of dollars, except unit and per unit amounts)  Years ended December 31, 2010 and 2009  1. Significant accounting policies:  These combined financial statements have been prepared in accordance with Canadian generally accepted accounting  principles (“GAAP”) and reflect the following policies:  The principles used to prepare combined financial statements are similar to those used to prepare consolidated financial  statements. The combined financial statements include the assets, liabilities, unitholders' equity, comprehensive income  and operating results of the Trusts, after elimination of the following:  The foreign exchange gain or loss recorded in net earnings as a result of exchanging Finance Trust's U.S. dollar note  receivable from U.S. Holdco is not eliminated on combination as U.S. Holdco is a self-sustaining operation of the REIT,  which results in the foreign exchange on the note payable being reported in accumulated other comprehensive income.  The combination of the Trusts does not result in the elimination of the equity of Finance Trust as neither of the Trusts  hold any interest in the other. The equity of the Trusts will be presented by way of combining the two together. As a  result, the creation of Finance Trust will result in an increase to equity for the issuance of such Finance Trust units,  similar to the reporting of the distribution of Finance Trust units to unitholders by the REIT.  (i) the REIT's notes payable to Finance Trust; and  (ii) the REIT's interest expense and Finance Trust's interest income from the notes payable to Finance Trust.  The combined financial statements include the accounts of all entities in which the REIT holds a controlling interest. Finance Trust does not hold a controlling interest in any entity. The REIT carries out a portion of its activities through co-ownership agreements and records its proportionate share of  assets, liabilities, revenue, expenses and cash flows of all co-ownerships in which it participates.  All material intercompany transactions and balances have been eliminated upon consolidation. Income properties are recorded at cost less accumulated depreciation. The REIT reviews whether the income properties  are impaired whenever events or changes in circumstances affect the ultimate value of the income property and indicate  that the carrying amount may not be recoverable. An impairment is recognized if the sum of the estimated undiscounted  future cash flows from operations and expected residual value is less than the carrying value of a particular asset. The  impairment recognized is measured at the amount by which the carrying amount of the asset exceeds its fair value. 7  (c) Income properties:  (b) Principles of consolidation  (a) Principles of combination 