CAPITAL POWER CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts in millions of Canadian dollars, except share and per share amounts) 2. Significant accounting policies, continued: (c) Business combinations and goodwill: Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition in exchange for control of the acquired business. Acquisition-related costs are recognized into net income as incurred. Goodwill is measured as the excess of the fair value of the consideration transferred less the fair value of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognized immediately into income. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition. Where an acquisition involves consideration contingent on future events, any changes in the amount of consideration paid will be recognized into net income. After initial recognition, goodwill is not amortized, but is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired, at the cash-generating unit (CGU) level. For the purpose of impairment testing, goodwill acquired in an acquisition is, from the date of acquisition, allocated to each of the Company’s CGUs that are expected to benefit from the acquisition. For further discussion over impairment of goodwill, refer to the accounting policy for impairment of non- financial assets (note 2(n)). Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained. Capital Power has interests with other parties (the venturers), whereby in each case the venturers have a contractual arrangement that establishes joint control over the economic activities of the arrangement. These arrangements involve the joint ownership of assets which are used to obtain benefits for each venturer, and are considered to be jointly controlled assets. In these situations Capital Power recognizes its share of the jointly controlled assets and liabilities in accordance with those associated rights and obligations, along with its share of the income from the output of the jointly controlled asset along with its share of any expenses incurred. The accounting policies of these jointly controlled asset arrangements are aligned with the accounting policies of the Company. 80 Investments in jointly controlled assets (d) Investments in joint ventures: The Company elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets, at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. Business combinations Goodwill