CAPITAL POWER CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts in millions of Canadian dollars, except share and per share amounts) Depreciation is charged to net income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the asset. Major components of property, plant and equipment are depreciated separately over their respective useful lives. Land and construction work in progress are not depreciated. The estimated useful lives for generation plants and equipment range from 1 to 60 years. The estimated useful lives, residual values and methods of depreciation are reviewed annually, and adjusted prospectively if appropriate. Gains and losses on the disposal or retirement of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount at the date of disposal. Gains or losses on disposals are recognized on their own line within the consolidated statements of income while losses on retirements are recognized within depreciation and amortization. 2. Significant accounting policies, continued: Depreciation Capitalization (j) Property, plant and equipment, continued: (k) Intangible assets: Intangible assets with definite lives are recorded at cost, net of accumulated amortization and/or accumulated impairment losses, if any. Intangible assets with definite lives are amortized over the related assets useful lives, as described below. Refer to note 18 for additional discussion over intangible assets. The only indefinite life intangible assets recorded by the Company are purchased emission credits. Amortization is charged to net income on a straight-line basis to write-off the cost less the estimated residual value over the estimated remaining term of the agreement or in line with the life of the related generating plant to which it relates. Software work in progress is not amortized as the software is not available for use. Land lease rights are amortized when the related wind power assets are constructed and commissioned for service over the lives of the related wind power assets or the term of the lease, whichever is shorter. Coal supply access rights are amortized over the life of the coal supply agreement related to the Keephills 3 plant. The Company’s purchased emission credits are not amortized, but are expensed as the associated benefits are realized. The periods over which intangible assets are amortized are as follows: Amortization Estimated useful lives, methods of amortization and residual values are reviewed annually, and adjusted prospectively if required. Gains or losses on the disposal of intangible assets are determined as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized into net income as gains or losses on disposals. Alberta PPAs 11 years Contract rights 5 years Water rights over the lives of the associated property, plant and equipment Software 1 to 10 years Customer rights 30 years 86