Home' Trinidad and Tobago Guardian : December 18th 2014 Contents C37
First Citizens Bank Limited And Its Subsidiaries
(A Subsidiary of First Citizens Holdings Limited)
Consolidated Financial Statements
30 September, 2014
(Expressed in Trinidad and Tobago dollars)
2 Summary of Significant Accounting Policies (Continued)
2.12 Income tax (continued)
Deferred income tax liabilities are provided on taxable temporary differences arising from investments
in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the
timing of the reversal of the temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future. Generally the Group is unable to control
the reversal of the temporary difference for associates. Only where there is an agreement in place that
gives the Group the ability to control the reversal of the temporary difference not recognised.
Deferred income tax assets are recognised on deductible temporary differences arising from investments
in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary
difference will reverse in the future and there is sufficient taxable profit available against which the
temporary difference can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities
relate to income taxes levied by the same taxation authority on either the same taxable entity or different
taxable entities where there is an intention to settle the balances on a net basis.
2.13 Employee benefits
(a) Pension plans
The Group operates a defined benefit plan, which is a pension plan that defines an amount of
pension benefits that an employee will receive on retirement, usually dependent on one or more
factors, such as age, years of service and compensation. This pension plan is funded by payments
from employees and by the Group, taking account of the recommendations of independent
Typically defined benefit plans define an amount of pension benefit that an employee will receive
on retirement, usually dependent on one or more factors such as age, years of service and
The liability recognised in the balance sheet in respect of defined benefit pension plans is the
present value of the defined benefit obligation at the end of the reporting period less the fair value
of plan assets. The defined benefit obligation is calculated annually by independent actuaries
using the projected unit credit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using interest rates of high-quality
corporate bonds that are denominated in the currency in which the benefits will be paid, and that
have terms to maturity approximating to the terms of the related pension obligation. In countries
where there is no deep market in such bonds, the market rates on government bonds are used.
(b) Profit sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit-sharing, based on a
formula that takes into consideration the profit attributable to the Group's shareholders after
certain adjustments. The Group recognises a provision where contractually obliged or where there
is a past practice that has created a constructive obligation.
2.14 Cash and cash equivalents
For purposes of the consolidated statement of cashflows, cash and cash equivalents comprise of cash
balances on hand, deposits with other banks and short-term highly liquid investments with original
maturities of three months or less when purchased net of balances "due to other banks".
2.15 Interest income and expense
Interest income and interest expense are recognised in the consolidated income statement for all interest
bearing instruments on an accrual basis using the effective interest method based on the actual purchase
price. Interest income includes coupons earned on fixed income investments, loans and accrued discount
and premium on treasury bills and other discounted instruments. When a loan and receivable is impaired,
the Group reduces the carrying amount to its recoverable amount, being the estimated future cashflow
discounted at the original effective interest rate of the instrument, and continues unwinding the discount
as interest income.
The effective interest method is a method of calculating the amortised cost of a financial asset or a
financial liability and of allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument, or when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability. When calculating the effective interest rate,
the Group estimates cashflows considering all contractual terms of the financial instrument (for example,
prepayment options), but does not consider future credit losses. The calculation includes all fees paid or
received between parties to the contract that are an integral part of the effective interest rate, transaction
costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used to discount the future
cashflows for the purpose of measuring the impairment loss.
2.16 Fee and commission income
Fees and commissions are recognised on an accrual basis, when the service has been provided. Loan
commitment fees for loans that are likely to be drawn down are deferred (together with related direct
cost) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are
recognised as revenue when the syndication has been completed and the Group has retained no part of
the loan package for itself or has retained part at the same effective interest rate as the other participants.
Commissions and fees arising from negotiating or participating in the negotiation of a transaction for
a third party, such as the arrangement of the acquisition of shares or other securities or the purchase
or sale of businesses are recognised on completion of the underlying transaction. Portfolio and other
management advisory and service fees are recognised based on the applicable service contracts usually
on a time apportionate basis.
Asset management fees related to investment funds are recognised rateably over the period the service
is provided and accrued in accordance with pre-approved fee scales. The same principle is applied
for wealth management, financial planning and custody services that are continuously provided over
an extended period of time. Performance linked fees or fee components are recognised when the
performance criteria are fulfilled.
2.17 Dividend income
Dividends are recognised in the consolidated income statement when the entity's right to receive
payment is established.
2.18 Computer software
Costs associated with maintaining computer software programmes are recognised as an expense when
incurred. However, expenditure that enhances or extends the benefits of computer software programmes
beyond their original specifications and lives is recognised as a capital improvement and added to the
original cost of the software. Computer software development costs recognised as assets are amortised
using the straight-line method over their useful lives but not exceeding a period of three years.
Borrowings are recognised initially at fair value, being their issue proceeds net of transaction costs
incurred. Subsequently, borrowings are stated at amortised cost and any difference between proceeds
net of transactions costs and the redemption value is recognised in the consolidated income statement
over the period of the borrowings using the effective interest method.
Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers.
The Group expects most acceptances to be settled simultaneously with the reimbursement from the
customers. Acceptances are accounted for as off-balance sheet transactions and are disclosed as
contingent liabilities and commitments.
2.21 Dividend distribution
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the
Company's shareholders. Dividends for the year, which are declared after the year end, are disclosed in
the subsequent events note when applicable.
2.22 Preference shares
Preference shares that are non-convertible and non-redeemable are classified as equity. Dividends are
declared at the discretion of the directors.
Provisions are recognised when the Group has a present legal or constructive obligation as a result of
past events, it is more likely than not that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
Where there are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of the obligation as a whole. A provision is recognised
even if the likelihood of an outflow with respect to any one item included in the same class of obligations
may be small.
Provisions are measured at the present value of the expenditure expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to the passage of time is recognised
as interest expense.
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