Financial Information

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, Plant and Equipment

Building		- 20 years, straight-line basis
Rental equipment		- 10 years, straight-line basis
Computer equipment		- 30%, declining balance basis
Computer software		-30%, declining balance basis
urniture and fixtures		- 20%, declining balance basis
Vehicles		-30%, declining balance basis

(f) Long-lived Assets

Long-lived assets, including property, plant and equipment, intangible assets and deferred charges with finite useful lives are amortized over their estimated useful lives. The Company reviews its long-lived assets for impairment on a regular basis or more frequently if events or changes in circumstances indicate that the carrying value exceeds its fair value, as determined by the undiscounted future cash flows expected from the long-lived assets. If the sum of the undiscounted future cash flow expected and eventual disposition of assets is less than the carrying amount, it is considered to be impaired. An impairment loss is measured as the amount by which the carrying amount of the group of assets exceeds its fair value. For the years ended October 31, 2009 and 2008, the Company recorded no impairment loss.

(g) Intangible Assets

Intangible assets consisting of franchise rights are recorded at the cost at which the Company acquired the rights. Amortization is provided on a straight-line basis over their estimated useful lives between 2 and 14, years representing the remaining term of the respective franchise agreement.

(h) Income Taxes

Current income tax expense reflects the estimated income taxes payable for the current year. The Company follows the asset and liability method of accounting for income taxes. Under this method future income taxes are recognized to reflect the temporary differences between the carrying amounts of the assets and liabilities for accounting purposes and the amounts used for tax purposes.

The Company calculates future income taxes using the rates enacted by tax law. The effect of a change in tax rates on future income tax assets and liabilities is included in earnings in the year when the change was enacted. A valuation allowance is provided to the extent that it is more likely than not that the future income tax assets will not be realized.

(i) Deferred Charges

Costs incurred in developing the monitoring station are capitalized as deferred charges. Amortization is recorded annually on a straight-line basis over 10 years, which represents management’s best estimate of the useful life of the monitoring station. As at October 31, 2009, the deferred charges are fully amortized.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(j) Earnings Per Share

Basic earnings per common share is determined using the weighted-average number of common shares outstanding during the respective year. The treasury stock method is used to compute the dilutive effect of options.

(k) Foreign Currencies

Monetary assets and liabilities of the wholly-owned subsidiaries are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities are translated at the historical rate, unless such items are fair value, in which case they are translated at the exchange rate in effect at the balance sheet dates. Current year additions and amortization expenses are translated at the weighted average rate. Revenue and other expenses are also translated at the weighted average rate for the year. Foreign exchange gains or losses on translations are recognized in the consolidated statements of income.

(l) Use of Estimates

The preparation of financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Examples of significant estimates include:

(m) Stock-based Compensation

The Company has a stock option plan for employees and directors of the Company. The options to purchase shares must be issued at an amount not less than the fair value at the date of grant. The Company uses the fair value method of accounting for all stock option awards. Under this method the Company recognizes a compensation expense based on the fair value of the options on the date of grant, which is determined by using an option-pricing model. Any consideration paid on the exercise of stock options, together with any contributed surplus recorded at the date the options vested, is credited to share capital.

The Company calculates the fair value of stock-based compensation awarded to directors, officers and employees using the Black-Scholes Option Pricing Model. The fair value of the options is recognized over the vesting period of the options granted as compensation expense and contributed surplus.

(n) Capital Structure

Effective November 1, 2008, the Company adopted CICA Handbook Section 1535, “Capital Disclosures”, which provides standards for disclosures regarding a company’s capital and how it is managed. Enhanced disclosure with respect to the objectives, policies and processes for managing capital and quantitative disclosures about what a company regards as capital is required. These recommendations are currently in effect and, therefore, apply to the Company. The new disclosures are included in note 3.

(o) Accounting Policy Developments

1) General Standards on Financial Statement Presentation: Effective November 1, 2008 the Company adopted the Canadian Institute of Chartered Accountants (CICA) issued Handbook Section 1400, “General Standards on Financial Statement Presentation”, which was amended to include requirements to assess and disclose an entity’s ability to continue as a going concern. The application of this standard had no impact on the Company’s consolidated financial statements.

2) Goodwill and Intangible Assets: Effective November 1, 2008, the Company adopted CICA Handbook Section 3064, “Goodwill and Intangible Assets”. The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The application of this standard does not have any impact on the Company’s consolidated financial statements.

3) Inventory: Effective November 1, 2008, the Company adopted CICA Section 3031, “Inventories” resulting from the convergence with International Financial Reporting Standards (IFRS), which requires inventory to be measured at lower of cost and net realizable value. The standard also provides guidance on the costs that can be capitalized. In addition, previous inventory write-downs are now allowed to be reversed if the economic circumstances have changed to support an increased inventory value. The application of this new standard had no impact on the Company’s consolidated financial statements.