TD Bank 2012 Annual Report Download - page 104

TD BANK GROUP ANNUAL REPORT 2012 FINANCIAL RESULTS102
Depreciation is recognized on a straight-line basis over the useful lives
of the assets estimated by asset category, as follows:
Asset Useful Life
Buildings 15 to 40 years
Computer equipment 3 to 7 years
Furniture and fixtures 3 to 15 years
Other equipment 5 to 8 years
Leasehold improvements Lesser of lease term plus one renewal and 15 years
The Bank assesses its depreciable assets for impairment on a quarterly
basis. When impairment indicators are present, the recoverable
amount of the asset, which is the higher of its estimated fair value less
costs to sell and its value-in-use, is determined. If the carrying value
of the asset is higher than its recoverable amount, the asset is written
down to its recoverable amount. An impairment loss is recognized in
the Consolidated Statement of Income in the period in which the
impairment is identified. Impairment losses recognized previously are
assessed and reversed if the circumstances leading to their impairment
are no longer present. Reversal of any impairment loss will not exceed
the carrying amount of the depreciable asset that would have been
determined had no impairment loss been recognized for the asset in
prior periods.
NON-CURRENT ASSETS HELD FOR SALE
Individual non-current assets (and disposal groups) are classified as
held for sale if they are available for immediate sale in their present
condition subject only to terms that are usual and customary for sales
of such assets (or disposal groups), and their sale must be highly
probable to occur within one year. For a sale to be highly probable,
management must be committed to a sales plan and initiate an active
program to market for the sale of the non-current assets (and disposal
groups). Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of their carrying amount and fair value
less costs to sell on the Consolidated Balance Sheet. Subsequent to its
initial classification as held for sale, a non-current asset (and disposal
group) is no longer depreciated or amortized, and any subsequent
write-downs in fair value less costs to sell or such increases not in
excess of cumulative write-downs, are recognized in the Consolidated
Statement of Income.
SHARE-BASED COMPENSATION
The Bank grants share options to certain employees as compensation
for services provided to the Bank. The Bank uses a binomial tree-based
valuation option pricing model to estimate fair value for all share-
based compensation awards. The cost of the share options is based
on the fair value estimated at the grant date and is recognized as
compensation expense and contributed surplus over the service period
required for employees to become fully entitled to the awards. This
period is generally equal to the vesting period and includes a period
prior to the grant date. For the Bank’s share options, this period is
generally equal to five years. When options are exercised, the amount
initially recognized in the contributed surplus balance is reduced with
a corresponding increase in common shares.
The Bank has various other share-based compensation plans where
certain employees are awarded cash payments equivalent to units of
the Bank’s common shares as compensation for services provided to
the Bank. The obligation related to share units is included in other
liabilities. Compensation expense is recognized based on the fair value
of the share units at the grant date adjusted for changes in fair value
between the grant date and the vesting date, net of the effects of
hedges, over the service period required for employees to become fully
entitled to the awards. This period is generally equal to the vesting
period and includes a period prior to the grant date. For the Bank’s
share units, this period is generally equal to four years.
EMPLOYEE BENEFITS
Defined Benefit Plans
Actuarial valuations are prepared at least every three years to deter-
mine the present value of the projected benefit obligation related to
the Bank’s principal pension and non-pension post-retirement benefit
plans. In periods between actuarial valuations, an extrapolation is
performed based on the most recent valuation completed. Pension and
non-pension post-retirement benefit expenses are determined based
upon separate actuarial valuations using the projected benefit method
pro-rated on service and management’s best estimates of expected
long-term return on plan assets, compensation increases, health care
cost trend rate, and discount rate, which are reviewed annually with
the Bank’s actuaries. The expense recognized includes the cost of
benefits for employee service provided in the current year, interest
expense on obligations, expected return on plan assets, the cost of
vested plan amendments, the amortization of the cost of unvested
plan amendments, and amortization of actuarial gains or losses. The
fair value of plan assets and the present value of the projected benefit
obligation are measured as at October 31. The net defined benefit
asset or liability represents the difference between the cumulative
expenses and recognized cumulative contributions and is reported in
other assets or other liabilities.
The cost of plan amendments are recognized in income immediately
if they relate to vested benefits. Otherwise, the cost of plan amend-
ments are deferred and amortized into income on a straight-line basis
over the vesting period, which is the period until the plan member
becomes unconditionally entitled to the benefits for the principal
pension plans and the expected average remaining period to full eligi-
bility for the principal non-pension post-retirement benefit plan.
The excess, if any, of the accumulated net actuarial gain or loss over
10% of the greater of the projected benefit obligation and the fair
value of plan assets for the Bank’s principal pension plans is recog-
nized in income on a straight-line basis over the expected average
remaining working lives of the active plan members. This is commonly
referred to as the corridor approach.
Prepaid pension assets recognized by the Bank are subject to a
ceiling which limits the asset recognized on the Consolidated Balance
Sheet to the amount that is recoverable through refunds of contribu-
tions or future contribution holidays. In addition, where a regulatory
funding deficit exists related to a defined benefit plan, the Bank is
required to record a liability equal to the present value of all future
cash payments required to eliminate that deficit.
Curtailment and settlement gains and losses are recognized in
income by the Bank when the curtailment or settlement occurs.
A curtailment occurs when the Bank is demonstrably committed to
materially reducing the number of employees covered by the plan,
or amending the terms of a defined benefit plan so that a significant
element of future service by current employees will no longer qualify
for benefits, or will qualify only for reduced benefits. A settlement
occurs when the Bank enters into a transaction that eliminates all
further legal or constructive obligation for part or all of the benefits
provided under a defined benefit plan.
Defined Contribution Plans
For defined contribution plans, annual pension expense is equal to the
Bank’s contributions to those plans.
INSURANCE
Premiums for short-duration insurance contracts, net of reinsurance,
primarily property and casualty, are deferred as unearned premiums and
reported in other income on a pro rata basis over the terms of the poli-
cies, except for contracts where the period of risk differs significantly
from the contract period. Unearned premiums are reported in other
liabilities, gross of premiums attributable to reinsurers. The reinsurers’
share is recognized as an asset in other assets. Premiums from life
and health insurance policies are recognized as income when due
from the policyholder.