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ERNEST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 15 Note 2 - Summary of Significant Accounting Policies (cont'd.) Goodwill Goodwill is recorded when the cost of acquired businesses exceeds the fair value of the identifiable net assets acquired. Under FASB Accounting Standards Update (“ASU”) No. 2014- 02, Intangibles - Goodwill and Other (Topic 350): Accounting for Goodwill and Other, goodwill will be amortized over 10 years on a straight-line basis. Goodwill of the subsidiaries shall be tested for impairment when events occur or circumstances change that would more likely than not reduce the fair value of the subsidiaries’ goodwill below the carrying amount. These events are triggering events. Under ASU No. 2021-03, Intangibles - Goodwill and Other (Topic 350) Accounting Alternative for Evaluating Triggering Events, a reporting entity that elects this alternative is not required to monitor for goodwill impairment triggering events during the reporting period but, instead, should evaluate the facts and circumstances as of the end of each reporting period to determine whether a triggering event exists and, if so, whether it is more likely than not that goodwill is impaired. No impairment was deemed to exist at December 31, 2023. Definite-Lived Intangibles Intangible assets consist of trade names derived from the acquisition of a business. Intangible assets are amortized over an estimated useful life of three years using the straight-line method. The Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured as the amount by which the carrying amount, if any, exceeds its fair value. No impairment was deemed to exist at December 31, 2023. Business Combinations Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent consideration, where applicable. Although management believes the assumptions and estimates which were made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets the Company has acquired include future expected cash flows from product sales, customer contracts and acquired technologies, expected costs to develop in-process research and development into commercially viable products, estimated cash flows from the projects when completed, and discount rates. Unanticipated events and circumstances may occur that may affect actual results.