Bank of Montreal 1998 Annual Report Download - page 81

We prepare our consolidated financial statements in accordance
with Canadian generally accepted accounting principles including
the accounting requirements of our regulator, the Superintendent of
Financial Institutions Canada.
In addition, our consolidated financial statements comply with the
disclosure requirements of United States generally accepted account-
ing principles. Differences in consolidated total assets and liabilities
or net income arising from applying United States generally accepted
accounting principles, if any, are described in note 23.
Basis of Consolidation
We conduct business through a variety of corporate structures, including
subsidiaries, joint ventures and associated corporations. Subsidiaries
are those where we exercise control through our ownership of the
majority of the voting shares. Joint ventures are those where we
control a corporation together with various partners through our pro-
portionate ownership of the voting shares. The revenues, expenses,
assets and liabilities of our subsidiaries and our proportionate share of
such amounts in joint ventures are included in our consolidated finan-
cial statements.
In some instances, we exert significant influence, but not control,
over a corporation. Our investment in these associated corporations
is recorded as a component of securities in our Consolidated Balance
Sheet. Our proportionate share of the net income or loss is recognized
in our interest, dividend and fee income in our Consolidated Statement
of Income. The amount is net of adjustments for goodwill that arose
at the time we acquired our interest in the associated corporation.
All significant intercompany transactions and balances are eliminated.
Trust assets under administration are maintained separately from
our assets and are not included in our Consolidated Balance Sheet.
Translation of Foreign Currencies
We conduct business in a variety of foreign currencies and report our
consolidated financial statements in Canadian dollars. Assets, liabili-
ties and shareholders’ equity related to foreign currency transactions
NOTE 1 BASIS OF PRESENTATION
On January 23, 1998 we announced a definitive agreement, subject
to regulatory and shareholder approval, to merge with Royal
Bank of Canada. This transaction is a merger of equals and will
be accounted for using the pooling of interests method. Under
this method the assets and liabilities of each bank will be added
together at their carrying value without any fair value adjustments,
and as such, there will be no resulting goodwill. All financial state-
ments presented for prior years will be restated to reflect the finan-
cial condition and performance of the banks as if they had always
been combined.
Deposits with Banks
Depositswithbanksarerecordedatcostandincludeacceptances
which we have purchased that have been issued by other banks. Inter-
est
income earned on these deposits is recorded on an accrual basis.
Cheques and Other Items in Transit, Net
Cheques and other items in transit are recorded at cost and represent
the net position of the uncleared cheques and other items in transit
between us and other banks.
are translated into Canadian dollars at the exchange rate in effect at
the balance sheet date. The income and expense amounts related to
these transactions are translated using the average exchange rate for
the year. The realized and unrealized gains and losses arising from
these translations are included in other income in our Consolidated
Statement of Income.
We have various investments in foreign operations which are denom-
inated in foreign currencies. Unrealized gains and losses arising from
translating investments to Canadian dollars are included in share-
holders’ equity in our Consolidated Balance Sheet unless the operation
is located in a country experiencing extremely high inflation over a
prolonged period of time, then the unrealized gains and losses are
included in other income in our Consolidated Statement of Income. All
realized translation gains and losses related to our foreign operations
are recognized in other income.
From time to time, we enter into foreign exchange hedge contracts
to reduce our exposure to changes in the value of foreign currencies.
The gain or loss on the translation of the hedge contract is offset against
the realized or unrealized gain or loss on the translation of the item
being hedged and is included in other income or retained earnings.
Use of Estimates
In preparing our consolidated financial statements we must make
estimates and assumptions, mainly considering values, which affect
reported amounts of assets, liabilities, net income and related disclosures.
Specific Accounting Policies
To facilitate a better understanding of our consolidated financial
statements we have disclosed our significant accounting policies
throughout the following notes with the related financial disclosures
by major caption.
Changes in Accounting Policies
The effects of new accounting policies issued by standard setters are
described in notes 15 and 23.
Under the terms of the agreement, shareholders of Royal Bank
of Canada will receive one common share of the merged bank for
each common share held. Bank of Montreal shareholders will receive
0.97 of a common share of the merged bank for each common
share held.
A Joint Management Proxy Circular describing the proposed
merger will be mailed to all shareholders of record at a later date. The
expected date of the merger is subject to the timing of approvals
under the Bank Act and the Competition Act in Canada, as well as
various other Canadian, U.S. and international approvals.
1998 19 97
Cash and non-interest bearing deposits
with Bank of Canada and other banks $ 1,478 $ 1,681
Interest bearing deposits with banks 16,768 29,594
Cheques and other items in transit, net 1,484 970
To t a l $ 19,730 $ 32,245
We have a number of banking subsidiaries whose cash is available
for use in their own business and may not be used by other related
corporations.
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BANK OF MONTREAL GROUP OF COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN $ IN MILLIONS, UNLESS OTHERWISE STATED)
NOTE 2 MERGER WITH ROYAL BANK OF CANADA
NOTE 3 CASH RESOURCES