3.  Significant accounting policies (continued):  Loans and receivables  Cash and cash equivalents  Available-for-sale financial assets  (ii) Derivative financial instruments  (d) Share capital  Common shares  (e) Equipment  (i) Recognition and measurement  (ii) Depreciation  Loans and receivables are financial assets with fixed or determinable payments that are not quoted  in an active market. Such assets are recognized initially at fair value plus any directly attributable  transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized  cost using the effective interest method, less any impairment losses.  Loans and receivables are comprised of cash and cash equivalents, and trade and other receivables. Cash and cash equivalents are comprised of cash balances and banker’s acceptances with original  maturities of three months or less. Available-for-sale financial assets are non-derivative financial assets that are designated as available  for sale or are not classified in any of the previous categories. The Corporation’s investments in  preferred partnership units and limited liability corporations are classified as available-for-sale  financial assets. Subsequent to initial recognition, they are measured at fair value and changes  therein, other than impairment losses, are recognized in other comprehensive income and  presented in fair value reserve. When an investment is derecognized, the gain or loss accumulated  in equity is reclassified to profit or loss.  The Corporation holds derivative financial instruments to hedge its foreign currency exposure. The  Corporation has entered into forward contracts equal to the monthly and quarterly flow of funds  from its investment in Quetico, the Corporation’s lone foreign investment. The Corporation matched  100% of the 2012 scheduled distributions to the Canadian parent and 90% of the expected 2013  distributions resulting in an economic hedge of the foreign currency exposure. The fair value of the  forward contracts will be estimated at each reporting date and any gain or loss on the contracts will  be recognized in profit or loss.  Common shares are classified as equity. Incremental costs directly attributable to the issue of  common shares are recognized as a deduction from equity, net of any tax effects. Equipment is measured at cost less accumulated depreciation. Depreciation is based on the cost of an asset less its residual value. Depreciation is recognized in  profit or loss on a straight-line basis over the estimated useful life of the asset. Depreciation  methods, useful lives and residual values are reviewed at each annual reporting date and adjusted if  appropriate.  26  2011 Annual Report  Alaris Royalty Corp. Notes to Consolidated Financial Statements  Year ended December 31, 2011 