TD Bank 2014 Annual Report Download - page 137

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 135
GOODWILL
Goodwill represents the excess purchase price paid over the net
fair value of identifiable assets and liabilities acquired in a business
combination. Goodwill is carried at its initial cost less accumulated
impairment losses.
Goodwill is allocated to a cash generating unit (CGU) or a group of
CGUs that is expected to benefit from the synergies of the business
combination, regardless of whether any assets acquired and liabilities
assumed are assigned to the CGU or group of CGUs. A CGU is the
smallest identifiable group of assets that generate cash flows largely
independent of the cash inflows from other assets or groups of assets.
Each CGU or group of CGUs, to which the goodwill is allocated,
represents the lowest level within the Bank at which the goodwill is
monitored for internal management purposes and is not larger than
an operating segment.
Goodwill is assessed for impairment at least annually and when
an event or change in circumstances indicates that the carrying
amount may be impaired. When impairment indicators are present,
the recoverable amount of the CGU or group of CGUs, which is the
higher of its estimated fair value less costs to sell and its value-in-use,
is determined. If the carrying amount of the CGU or group of CGUs is
higher than its recoverable amount, an impairment loss exists. The
impairment loss is recognized on the Consolidated Statement of
Income and is applied to the goodwill balance. An impairment loss
cannot be reversed in future periods.
INTANGIBLE ASSETS
The Bank’s intangible assets consist primarily of core deposit intangi-
bles, credit card related intangibles and software intangibles. Intangi-
ble assets are initially recognized at fair value and are amortized over
their estimated useful lives (3 to 20 years) proportionate to their
expected economic benefits, except for software which is amortized
over its estimated useful life (3 to 7 years) on a straight-line basis.
The Bank assesses its intangible 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 amount
of the asset is higher than its recoverable amount, the asset is written
down to its recoverable amount. An impairment loss is recognized on
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 the impairment
are no longer present. Reversal of any impairment loss will not exceed
the carrying amount of the intangible asset that would have been
determined had no impairment loss been recognized for the asset in
prior periods.
LAND, BUILDINGS, EQUIPMENT, AND OTHER
DEPRECIABLE ASSETS
Land is recognized at cost. Buildings, computer equipment, furniture
and fixtures, other equipment and leasehold improvements are
recognized at cost less accumulated depreciation and provisions for
impairment, if any. Gains and losses on disposal are included in
Non-interest income on the Consolidated Statement of Income.
Assets leased under a finance lease are capitalized as assets and
depreciated on a straight-line basis over the lesser of the lease term
and the estimated useful life of the asset.
The Bank records the obligation associated with the retirement of
a long-lived asset at fair value in the period in which it is incurred and
can be reasonably estimated, and records a corresponding increase
to the carrying amount of the asset. The asset is depreciated on a
straight-line basis over its remaining useful life while the liability is
accreted to reflect the passage of time until the eventual settlement
of the obligation.
Securities Purchased Under Reverse Repurchase Agreements,
Securities Sold Under Repurchase Agreements, and Securities
Borrowing and Lending
Securities purchased under reverse repurchase agreements involve the
purchase of securities by the Bank under agreements to resell the
securities at a future date. These agreements are treated as collateral-
ized lending transactions whereby the Bank takes possession of the
purchased securities, but does not acquire the risks and rewards of
ownership. The Bank monitors the market value of the purchased
securities relative to the amounts due under the reverse repurchase
agreements, and when necessary, requires transfer of additional
collateral. In the event of counterparty default, the agreements provide
the Bank with the right to liquidate the collateral held and offset the
proceeds against the amount owing from the counterparty.
Obligations related to securities sold under repurchase agreements
involve the sale of securities by the Bank to counterparties under
agreements to repurchase the securities at a future date. These agree-
ments do not result in the risks and rewards of ownership being
relinquished and are treated as collateralized borrowing transactions.
The Bank monitors the market value of the securities sold relative to
the amounts due under the repurchase agreements, and when neces-
sary, transfers additional collateral and may require counterparties to
return collateral pledged. Certain transactions that do not meet
derecognition criteria under IFRS are also included in obligations
related to securities sold under repurchase agreements. Refer to Note
9 for further details.
Securities purchased under reverse repurchase agreements and
obligations related to securities sold under repurchase agreements
are initially recorded on the Consolidated Balance Sheet at the respec-
tive prices at which the securities were originally acquired or sold,
plus accrued interest. Subsequently, the agreements are measured
at amortized cost on the Consolidated Balance Sheet, plus accrued
interest. Interest earned on reverse repurchase agreements and
interest incurred on repurchase agreements is determined using
the EIRM and is included in Interest income and Interest expense,
respectively, on the Consolidated Statement of Income.
In security lending transactions, the Bank lends securities to a
counter party and receives collateral in the form of cash or securities.
If cash collateral is received, the Bank records the cash along with
an obligation to return the cash as an obligation related to Securities
sold under repurchase agreements on the Consolidated Balance
Sheet. Where securities are received as collateral, the Bank does not
record the collateral on the Consolidated Balance Sheet.
In securities borrowing transactions, the Bank borrows securities
from a counterparty and pledges either cash or securities as collateral.
If cash is pledged as collateral, the Bank records the transaction as
securities purchased under reverse repurchase agreements on the
Consolidated Balance Sheet. Securities pledged as collateral remain
on the Bank’s Consolidated Balance Sheet.
Where securities are pledged or received as collateral, security
borrowing fees and security lending income are recorded in Non-interest
expenses and Non-interest income, respectively, on the Consolidated
Statement of Income over the term of the transaction. Where cash is
pledged or received as collateral, interest received or incurred is deter-
mined using the EIRM and is included in Interest income and Interest
expense, respectively, on the Consolidated Statement of Income.
Commodities purchased or sold with an agreement to sell or
repurchase the commodities at a later date at a fixed price, are also
included in securities purchased under reverse repurchase agreements
and obligations related to securities sold under repurchase agreements,
respectively, if the derecognition criteria under IFRS are not met. These
instruments are measured at fair value.