Algonquin Power & Utilities Corp. – Consolidated Financial Statements ALGONQUIN POWER & UTILITIES CORP.  Notes to the Consolidated Financial Statements  December 31, 2012 and 2011   (in thousands of Canadian dollars except as noted and amounts per share)  1.  Significant accounting policies (continued) (l) Impairment of long-lived assets  (m) Variable interest entities  (n) Long-term investments and notes receivable  2012 Annual Report 82 An allowance for impairment loss on notes receivable is recorded if it is expected that the  Company will not collect all principal and interest contractually due. The impairment is measured  based on the present value of expected future cash flows discounted at the note’s effective  interest rate. Notes receivable are financial assets with fixed or determined payments that are not quoted in  an active market. Notes receivable that exceed one year and bear interest at a market rate  based on the customer’s credit quality are initially recorded at cost, which is generally face  value. Subsequent to acquisition, they are recorded at amortized cost using the effective  interest method. The Company acquired these notes receivable as long-term investments and  does not intend to sell these instruments prior to maturity. Investments in which APUC has significant influence but not control are accounted using the  equity method. APUC records its share in the income or loss of its investees in interest,  dividend and other income in the Consolidated Statement of Operations. Long Sault is a hydroelectric generating facility in which APUC acquired an interest by way  of subscribing to two notes from the original developers. The notes receivable effectively  provide APUC the right to 100% of after tax cash flows of the facility up to the end of 2013,  65% from 2014 to 2027 and 58% thereafter. The Company also has the right to acquire  58% of the equity in the facility at the end of the term of the notes in 2038. APUC has  determined that the facility is a VIE since the Company is the primary beneficiary and  therefore the Long Sault entity is subject to consolidation by the Company. Total net book  value of generating assets and long-term debt of Long Sault amounts to $41,260 (2011 - $46,160) and to $37,143 (2011 - $38,136), respectively. The financial performance of Long  Sault reflected on the statement of operations includes non-regulated energy sales of $8,747  (2011 - $9,804), operating expenses and amortization of $2,728 (2011 - $3,001) and interest  expense of $3,929 (2011 - $3,984).  The Company performs analysis to assess whether its operations and investments represent  variable interest entities (“VIEs”). To identify potential VIEs, management reviews contracts  under leases, long-term purchase power agreements, tolling contracts and jointly-owned  facilities. VIEs of which the Company is deemed the primary beneficiary are consolidated. The primary beneficiary of a VIE has both the power to direct the activities of the entity that  most significantly impact its economic performance and the obligation to absorb losses of the  entity that could potentially be significant to the entity. In circumstances where APUC is not  deemed the primary beneficiary, the VIE is not consolidated.  Assets Held for Sale: Recoverability of assets held for sale is measured by comparing the  carrying amount of an asset to its fair value less the cost to sell. If the carrying amount exceeds  the recoverable amount, the asset is written down to its fair value less estimated costs to sell. Assets Held and Used: Recoverability of assets expected to be held and used is measured by  comparing the carrying amount of an asset to undiscounted expected future cash flows. If the  carrying amount exceeds the recoverable amount, the asset is written down to its fair value.  APUC reviews property, plant and equipment and intangible assets for impairment whenever  events or changes in circumstances indicate the carrying amount may not be recoverable.