In its report to shareholders for its quarter ended April 30, 2007, TD Bank Financial Group reported the following items ($ million) in other comprehensive income:

– Change in unrealized gains and losses on
available- for- sale securities, net of cash fl ow hedges ....... $ 87
– Reclassifi cation to earnings in respect of
available- for- sale securities ................. (26)
– Change in gains and losses on derivative instruments
designated as cash fl ow hedges ................... 13

At the time, Canadian accounting standards with respect to financial instruments were similar to current IASB standards (Section 7.5.2).

a. Explain the nature of each of these three items.
b. What is the purpose of other comprehensive income?
c. Outline the two alternative formats for reporting other comprehensive income under current IASB and FASB standards. TD, like most firms, included other comprehensive income items in a statement of changes in equity rather than immediately following the net income statement. This alternative reporting of other comprehensive income was acceptable prior to the current IASB and FASB standards under U. S. and Canadian GAAP. Why would TD choose to report the changes in equity rather than report them immediately following the income statement?
d. As an investor, which earnings measure, net income or comprehensive income, is most useful to you in deciding whether to buy, hold, or sell TD shares? Explain.
e. As a member of the Compensation Committee of TD’s Board of Directors, which performance measure, net income or comprehensive income, is most useful to you in deciding on the amount of cash bonuses for senior officers for 2007? Explain.

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