Page 100 - Suncor AR English

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The company uses derivative financial instruments, such as physical and financial contracts, either to manage certain

exposures to fluctuations in interest rates, commodity prices and foreign exchange rates, as part of its overall risk
management program, or to earn trading revenues. Earnings impacts from derivatives used to manage a particular risk are

reported as part of Other Income in the related operating segment. Gains or losses from trading activities are reported in
Other Income as part of Corporate, Energy Trading and Eliminations.

Certain physical commodity contracts are deemed to be derivative financial instruments for accounting purposes. Physical

commodity contracts entered into for the purpose of receipt or delivery in accordance with the company’s expected
purchase, sale or usage requirements are not considered to be derivative financial instruments.

Derivatives embedded in other financial instruments or other host contracts are recorded as separate derivatives when

their risks and characteristics are not closely related to those of the host contract.

(q) Hedging Activities
The company may apply hedge accounting to arrangements that qualify for designated hedge accounting treatment.

Documentation is prepared at the inception of a hedge relationship in order to qualify for hedge accounting. Designated
hedges are assessed at each reporting date to determine if the relationship between the derivative and the underlying

hedged exposure is still effective and to quantify any ineffectiveness in the relationship.

If the derivative is designated as a fair value hedge, changes in the fair value of the derivative and in the fair value of the
hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow

hedge, the effective portions of the changes in fair value of the derivative are initially recorded in Other Comprehensive
Income and are recognized in earnings when the hedged item is realized. Ineffective portions of changes in the fair value

of cash flow hedges are recognized in earnings immediately. Changes in the fair value of a derivative designated in a fair
value or cash flow hedge are recognized in the same line item as the underlying hedged item.

(r) Share Capital

Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are
recognized as a deduction from equity, net of any tax effects. When the company repurchases its own common shares,

share capital is reduced by the average carrying value of the shares purchased. The excess of the purchase price over the
average carrying value is recognized as a deduction from Retained Earnings. Shares are cancelled upon purchase.

(s) Dividend Distributions

Dividends on common shares are recognized in the period in which the dividends are declared by the company’s Board
of Directors.

(t) Earnings per Share

Basic earnings per share is calculated by dividing the net earnings for the period by the weighted average number of
common shares outstanding during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding for
dilutive common shares related to the company’s share-based compensation plans. The number of shares included is

computed using the treasury stock method. Options with tandem stock appreciation rights or cash payment alternatives
are accounted for as cash-settled plans. As these awards can be exchanged for common shares of the company, they are

considered potentially dilutive and are included in the calculation of the company’s diluted net earnings per share if they
have a dilutive impact in the period.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements in accordance with IFRS requires management to make estimates and judgments

that affect reported assets, liabilities, revenues, expenses, gains, losses, and disclosures of contingencies. These estimates

96 SUNCOR ENERGY INC. ANNUAL REPORT 2013