NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidation Joint arrangements Revenue recognition  The financial statements of the Company consolidate the accounts of AKITA Drilling Ltd. and its subsidiaries. All inter-company transactions, balances and unrealized gains and losses from inter-company transactions are  eliminated on consolidation. Subsidiaries are entities over which the Company has control. The Company controls an entity when the  Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability  to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on  which control is transferred to the Company and are deconsolidated from the date that control ceases. The Company has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted  thereafter to recognize the Company’s share of the post-acquisition profits or losses and movements in other  comprehensive income. When the Company’s share of losses in a joint venture equals or exceeds its interests  in the joint ventures (which includes any long-term interests that, in substance, form part of the Company’s  net investment in the joint ventures), the Company does not recognize further losses, unless it has incurred  obligations or made payments on behalf of the joint ventures. Unrealized gains on transactions between the  Company and its joint ventures are eliminated to the extent of the Company’s interest in the joint ventures. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset  transferred.  The accounting policies of the joint ventures are consistent with the policies described herein.  Revenue resulting from the supply of contracted services is recorded by the percentage of completion method. On daywork contracts, work in progress is measured based upon the passage of time. On meterage contracts,  work in progress is based upon the depth drilled. The receipt of unearned contract revenue is recorded as  deferred revenue until the contracted passage of time has occurred or the targeted depth has been realized.  Certain revenue is comprised of the fair value of the consideration received or receivable from the construction  and related sale of rigs in the ordinary course of the Company’s activities and is recorded using the percentage  of completion method based upon costs incurred, the passage of time relative to the anticipated length of the  project and an estimate of work performed relative to future work required to complete the project. Interest income is recognized on a time-proportion basis using the effective interest method. 39 AKITA DRILLING LTD.  ANNUAL REPORT