1/ Significant accounting policies (continued) Financial assets are assessed for impairment on an annual basis at the end of the fiscal year if there are indicators of impairment. If there is an indicator of impairment, RECO determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, the amount that could be realized from selling the financial asset or the amount RECO expects to realize by exercising its right to any collateral. If events and circumstances reverse in a future period, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial carrying value. D/ CAPITAL ASSETS Capital assets are recorded at cost, less accumulated amortization. Amortization is provided at the following annual rates on a straight-line basis: Computer equipment 30% Office furniture and equipment 20% Leasehold improvements Over the term of the lease Office equipment, subject to capital lease Over the term of the lease E/ INTANGIBLE ASSETS Intangible assets include a management information system and other computer software and are recorded at cost, less accumulated amortization. Amortization of intangible assets is on a straight-line basis over the estimated useful life of the asset as follows: Management information system 10% Other computer software 30% F/ IMPAIRMENT OF CAPITAL AND INTANGIBLE ASSETS When a capital or intangible asset no longer has any long-term service potential, the excess of its net carrying value is recognized as an expense in the statement of operations. There were no impairment charges recognized for capital and intangible assets in 2017 and 2016. G/ LEASE INDUCEMENTS Lease inducements are amortized on a straight-line basis as a reduction of rent expense over the term of the lease. H/ USE OF ESTIMATES The preparation of RECO’s financial statements and the accompanying notes requires management to make estimates and assumptions that affect the amounts in the financial statements and the disclosure in the accompanying notes. Actual results could differ from the estimates used in preparing the financial statements. Significant estimates include the valuation of certain receivables and accrued liabilities. 2/ Short-term investments Short-term investments consist of guaranteed investment certificates (“GICs”) with interest rates ranging from 1.0 per cent to 1.8 per cent (2016: 0.7 per cent to 1.8 per cent). 3/ Capital assets 2017 Cost Accumulated amortization Net book value $ $ $ Computer equipment 2,409,954 1,806,353 603,601 Office furniture and equipment 2,732,930 2,399,853 333,077 Leasehold improvements 3,096,984 1,655,706 1,441,278 Office equipment, subject to capital lease 77,046 32,102 44,944 8,316,914 5,894,014 2,422,900 2016 Cost Accumulated amortization Net book value $ $ $ Computer equipment 1,792,070 1,519,244 272,826 Office furniture and equipment 2,398,428 2,261,032 137,396 Leasehold improvements 2,873,551 1,358,351 1,515,200 Office equipment, subject to capital lease 77,046 16,693 60,353 7,141,095 5,155,320 1,985,775 58/ RECO 2017 ANNUAL REPORT/INDEPENDENT AUDITORS' REPORT