NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Impairment of financial assets At each reporting date, the Company assesses whether there is objective evidence that a financial asset is  impaired. If such evidence exists, the Company recognizes an impairment loss calculated as the difference  between the amortized cost of the loan or receivable and the present value of the estimated future cash flows,  discounted using the instrument’s original effective interest rate. The carrying amount of the asset is reduced  by this amount either directly or indirectly through an allowance account. The criteria used to determine if there is objective evidence of an impairment loss include: (i)  Significant financial difficulty of the obligor; (ii) Delinquencies in interest or principal payments; and (iii) High degree of probability that the borrower will enter bankruptcy or other financial reorganization. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the  amount of the loss decreases and the decrease can be related objectively to an event occurring after the  impairment was recognized.  Translation of foreign currencies  Translation to functional currency The financial statements of entities that have functional currencies different from that of the Company are  translated into Canadian dollars as follows: assets and liabilities – at the closing rate as of the date of the  statement of financial position, and income and expenses – at the average rate during the period as this  is considered a reasonable approximation to actual rates. All resulting changes are recognized in other  comprehensive income as cumulative translation adjustments. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing  at the dates of the transactions. Generally, foreign exchange gains and losses resulting from the settlement  of foreign currency transactions and from the translation at the period-end exchange rates of monetary assets  and liabilities denominated in currencies other than the Company’s functional currency are recognized in the  Statement of Net Income and Comprehensive Income. Cash and cash equivalents Cash and cash equivalents comprise cash and bank guaranteed highly liquid short-term investments with  original maturities of three months or less. Term deposits comprise bank guaranteed highly liquid short-term investments held for greater than three  months.  Term deposits Accounts receivable Accounts receivable are recognized initially at fair value and subsequently measured at amortized cost using  the effective interest method less a provision for impairment. A provision for impairment of accounts receivable  is established when there is objective evidence that the Company will not be able to collect all amounts due  according to the original terms of the receivables. 41 AKITA DRILLING LTD.  ANNUAL REPORT