JAIIB - Accounting

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JAIIB - Accounting Finance for BankersMOD-D
Final Accounts of Banks Companies

• Prof. RAVISHANKAR ULLAL
• CFO
• TODAYS WRITING PRODUCTS

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FINAL ACCOUNTS

• The most important objective of accounting is to
  ascertain
• the profit or loss made by the concern
• Financial position of the concern
• The final product of accounting process iS
• final accounts
• The objectives of accounting can be achieved by
  preparing the final accounts, which comprise of
• Profit Loss Account Balance Sheet

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FINAL ACCOUNTS

• Summary of those accounts which affect the profit
  and loss of a business concern is called
• Income Statement
• The income statement has normally
• Income statement comprises of Trading and
  Profit Loss Account. They have two parts-the
  first part is called Trading account which
  reveals gross profit or gross loss, and the
  second part is called Profit Loss account to
  show net profit or net loss.

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FINAL ACCOUNTS

• In a trading concern direct expenses include
• all expenses in bringing the goods to the godown
  of the firm and in making them ready for sale,
  like freight paid on purchases, cartage, octroi,
  custom duty, carriage inward, etc.
• all expenses for sale and distribution of goods.

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FINAL ACCOUNTS

• In a manufacturing concern direct expenses
  include
• all expenses incurred for production of goods
  (like wages, power and fuel, Factory lighting,,
  factory rent and rates) and all expenses incurred
  in bringing the goods to the godown of the firm
  and in making them ready for sale, like freight
  paid on purchases, cartage, octroi, custom duty,
  carriage inward, etc.

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FINAL ACCOUNTS

• Administrative and office expenses include
• Office salaries
• Establishment expenses
• Office rent taxes
• Printing Stationnery
• Postage Telephone expenses
• Electricity charges
• Entertainment expenses
• Conveyance expenses
• Legal expenses Audit fee

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FINAL ACCOUNTS

• Selling Distibution expenses include
• Advertising
• Commission
• Discount
• Packing expenses
• Carriage outward
• Freight on sales
• Export duties
• Insurance
• Bad debts

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FINAL ACCOUNTS

• Fixed assets are those which are acquired for
• continuous use
• not for sale
• may be tangible
• may be intangible

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FINAL ACCOUNTS

• Current assets are those which are
• kept temporarily for resale
• for converting into cash
• they are cash or cash equivalent
• are to be realized within a period of one year
• are to be realized during the normal operating
  cycle

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FINAL ACCOUNTS

• Owners fund includes
• Capital less drawings of the owner
• Undistributed profits
• Reserves
• Assets minus liabilities

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FINAL ACCOUNTS

• Closing consolidated journal entries are
  normally passed for
• Transfer of all manufacturing and purchase
  expense to the debit side of trading a/c
• Transfer of Purchases and Sales return to the
  debit side of Trading a/c
• Transfer of Sales and Purchases return to the
  credit side of Trading a/c
• Transfer of closing stock to the credit of
  trading account by an adjustment entry

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FINAL ACCOUNTS

• Transfer of Gross profit to the credit side of
  Profit Loss a/c
• Transfer of Gross loss to the debit side of
  Profit Loss a/c
• Transfer of all administrative, selling and
  financial expenses to the debit of P L A/c
• Transfer of all operational and non-operational
  incomes to the credit of P L A/c
• Transfer of Net proft to the credit of Capital
  a/c
• Transfer of net loss to the debit of Capital a/c

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FINAL ACCOUNTS

• Some common adjustments are
• Closing Stock
• Expenses due but not paid (Outstanding expenses)
• Expenses paid in advance (Prepaid expenses)
• Incomes due but not received (Accrued incomes)
• Incomes not due but received (Unearned incomes)
• Depreciation on assets
• Interest on Capital

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FINAL ACCOUNTS

• Interest on Drawings
• Interest on Loan
• Bad debts to be written off
• Provision for bad debts
• Provision for discount on Debtors
• Provision for discount on creditors
• Losses on account of accidents
• Commission payable on profit
• Goods used by the proprietor
• Goods distributed as Free Samples

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Fundamentals of Partnership Accounts

• The important features of partnership are
• It is a relationship between persons
• There should be minimum two persons to form a
  partnership
• It is the result of an agreement
• The partnership agreement may be written or oral
• The agreement is to share the profits of the
  business.
• There must be a lawful business
• The business must be carried on by any one of
  them acting for all or by more than one, or by
  all of the partners

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Fundamentals of Partnership Accounts

• Following details should be incorporated in the
  Partnership deed as different clauses
• Name and business of the partnership firm
• Commencement and duration of the business
• Amount of capital to be contributed by each of
  the partner
• Rate of interest to be allowed/charged to each of
  partner on his
• Capital
• His loan to the firm
• His drawings
• Profit sharing ratio for disposal of profits
• Amount to be allowed as drawings and the timings
  of such drawings
• Whether any partner will be allowed a salary

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Fundamentals of Partnership Accounts

• Any variations in the mutual rights and duties of
  partners
• Method by which goodwill is to be calculated on
  the admission, retirement or death of a partner
• Procedure by which a partner may be admitted or
  retired, and the method of payment of dues
• Basis of the determination of the executors if
  any one of them is deceased and the method of
  payment
• Treatment of losses arising out of the insolvency
  of a partner. Whether Garner vs. Murray rule will
  be applicable to them or not.
• Procedure to be followed for settlement of
  disputes among partners
• Preparation of accounts and their audit.

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Fundamentals of Partnership Accounts

• Goodwill is normally due to
• Favourable Location
• Nature of business
• Licences and quotas with the business
• Possibility of competition
• Better customer service
• Efficient advertisement
• Possession of patent rights and trade marks
• Efficiency and Personal skill/ reputation of the
  management
• Better products

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Fundamentals of Partnership Accounts

• Its reputation, super profit earning capacity of
  a firm
• Necessity
• change in profit sharing ratio
• Admission, retirement, death
• Sale of business
• Methods
• Average profit
• Super profit
• capitalization of profit

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Fundamentals of Partnership Accounts

• Average profit(AP) Super profi(SP)
  Capitalization of profit
• AP x Multiplier SP x multiplier
• SP AP
  less NP
• NPnormal
  profit (Capitalised value) less Actual
  Multiplier is given Multiplier is given
  CAPITAL

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Fundamentals of Partnership Accounts

• Goodwill on capitalization basis can be
  calculated by the following steps
• Determine the normal rate of return.
• Find the average profits of the firm
• Find out the total capital employed by the same
  firm
• Find the normal value of business by dividing
  Average profits into normal rate of return.
• Take the difference of normal value of business
  and the capital employed
• This will be the value of goodwill of the firm

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Fundamentals of Partnership Accounts

• Super profit can be calculated by the following
  steps
• Identify the total capital employed by the
  Partnership firm
• Identify the average profit earned by the
  partnership firmbased on past few years figures
• Determine the normal rate of teturn prevailing in
  the industry or locality for the similar firms
• Apply normal rate of return on capital employed
  to arrive at normal profit
• Deduct normal profit from the average profit of
  the firm. If the average profit of the firm is
  more than the normal profit, there exists super
  profit

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Fundamentals of Partnership Accounts

• The following adjustments are made in the
  accounts of a partnership when a new partner is
  admitted
• Changes in profit sharing proportions
• Valuation of goodwill
• Distribution of accumulated profits and reserves
  by existing partners
• Re-valuation of assets and liabilities
• Re-structuring of capitals
• Preparation of a new balance sheet

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Fundamentals of Partnership Accounts

• When a new partner takes admission, he acquires
  the ownership rights of the assets and also makes
  himself responsible for the firms liabilities.
  It, therefore, becomes necessary to scrutinize
  the balance sheet carefully so that new partner
  should not get any benefit from the appreciation
  in the value of assets or reduction in the value
  of liabilities, nor he should suffer because of
  any decrease in the value of assets or increase
  of liabilities. Therefore, on the date of
  admission, the assets and liabilities of the
  firm are revalued and its profit or loss is
  transferred to the old partners capital accounts
  in their old profit sharing ratio

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Fundamentals of Partnership Accounts

• When the capital of the new partner is fixed on
  the basis of the combined capital of old
  partners, it requires following steps
• 1. Post all entries relating to old partners
  capital accounts and arrive at the closing
  balances
• 2. The combined capital represents the capital
  for the share held by old partners i.e. One minus
  proportion of new partner.
• 3. Based on the balance of old partners capital
  and their share, calculate the capital for full
  one share of profits.
• 4. On this basis calculate the share of new
  partner.

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Fundamentals of Partnership Accounts

• When the capital of the old partners is fixed on
  the basis of capital brought in by the new
  partner, it requires following steps
• 1. Post all entries relating to all partners
  capital accounts and arrive at the closing
  balances.
• 2. Based on the balance of new partners capital
  and his share, calculate the capital for full one
  share of profits.
• 3. Calculate the balances that each old partner
  should hold keeping in view the total amount of
  capital multiplied with his proportion.
• The capital accounts of old partners may show
  debit or credit balances. If debit balance, it
  shows the amount to be brought in by that
  partner. If it shows credit balance, the excess
  amount may either be paid back to him or may be
  transferred to his current account.

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Fundamentals of Partnership Accounts

• Let us say A and B are partners sharing profits
  equally. They take C as partner with equal share.
  The position will be as under
• Partners Old Ratio New Ratio Loss(Sacrifice)/
• Gain
• A 1/2 1/3 1/6
• B 1/2 1/3 1/6
• C Nil 1/3 1/3
• Sacrificing Ratio Old ratio  ()  New ratio

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Fundamentals of Partnership Accounts

• Let us suppose A, B, and C are partners sharing
  profits and losses in the ratio of 5 3 2. A
  retires and B and C agree to continue at the
  ratio of 3 2. In this case, the position will
  be as follows
• Old Ratio New Ratio Net Gain/Loss
• A 5/10 Nil
• B 3/10 3/5 3/10 (3/5  3/10)
• C 2/10 2/5 2/10 (2/5  2/10)
• Gain ratio will be 3 2.
• (b) Let us now suppose B and C change their
  ratio to 5 3 then the position will be as
  follows
• Old Ratio New Ratio Net Gain/Loss
• A 5/10 () 5/10 i.e 1/2
• B 3/10 5/8 13/40 (5/8  3/10)
• C 2/10 3/8  7/40 (3/8  2/10)
• Gain ratio will be 13/40 7/40 i.e. 13 7.

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Fundamentals of Partnership Accounts

• When a memorandum revaluation account is
  prepared, firstly the effect of changes in the
  value of assets and liabilities is transferred to
  the old partners capital accounts in their old
  ratio. Simultaneously, the entries are reversed
  and the balance is transferred to all the
  partners , including the new,in their new profit
  sharing ratio. This nullifies the effect of
  changes in the value of assets and liabilities of
  the firm and the capitals of the partners are
  adjusted.

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Fundamentals of Partnership Accounts

• On the death of a partner the executors or
  representatives of the deceased partner are
  entitled to the following benefits
• The amount standing to the credit of deceased
  partners capital a/c
• His share in the goodwill of the firm
• His share of profits earned from the beginning of
  the year to the date of death
• His share of profits on revaluation of assets and
  liabilities. His share of the loss, if any, shall
  be deducted
• His share of undistributed profit or reserves
• Interest on capital, salary or commission, etc.
  if provided in partnership deed.
• His share of the proceeds of the joint life
  policy.

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Fundamentals of Partnership Accounts

• If the death takes place in the middle of
  accounting period, the deceased partner is
  entitled to his share in profit or loss upto the
  date of his death. The amount can be determined
  by
• (i)preparing final accounts up to the date of
  death, or
• (ii) an estimated share in profit or loss is
  determined on the basis of
• (a) Preceding year
• (b) on the basis of sales up to the date
  of death and calculating profit on the basis of
• the percentage of profit earned in the
  previous year
• (c) on the basis of the time
• (d) on the basis of the average of the two

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COMPANY Accounts

• Features of a Joint Stock Company
• 1. Incorporated association
• A company is a registered body of individuals.
  According to the Companies Act, 1956, it is
  compulsory to register a joint stock company.
• 2. Artificial person
• It is an artificial person created by law. It is
  different from its members It can enter into
  contracts, purchase and sell the properties, can
  sue and be sued upon. Even a member can enter
  into contract with the company.
• 3. Perpetual succession
• A company has a perpetual succession. Death, or
  insolvency of any shareholder does not affect
  existence of the company.
• 4. Common seal
• As the company is an artificial person created
  by law, it cannot sign its name. So it has a
  common seal on which the companys name is
  engraved. The common seal is treated as companys
  signature and is affixed in all important
  documents and contracts as per the resolutions
  passed by the Board.
• 5. Limited liability
• The liability of the members of the joint stock
  company is limited to the face value of shares
  held by them. Companies (Amendment) Bill 2003
  states that if a company, private or public,
  fails to enhance its minimum paid up capital (
  i.e. One Lakh rupees or Five Lakh rupees, as the
  case may be) each director or manager or
  shareholder will have unlimited liability.

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COMPANY Accounts

• 6. Separation of management from ownership
• Even though the shareholders are true owners,
  they do not participate in the management of the
  company. They elect their representatives known
  as Board of Directors.
• 7. Transferability of shares
• The shares of a company are freely transferable
  subject to restrictions placed on transfer of
  private limited companys shares.
• 8. Separate legal status
• A company has an independent legal status and as
  such, the shareholders or the owners are not
  liable for the acts of the company.
• 9. Large membership
• A company is owned by a large number of members.
  In the case of private limited company the
  minimum number of members is 2 and the maximum is
  50. In the case of public limited company, the
  minimum number of members is 7 and there is no
  maximum limit on the number of members.

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COMPANY Accounts

• The Liabilities of a company are arranged in the
  following order
• Share Capital
• Reserves and Surplus
• Secured Loans
• Unsecured loans
• Current Liabilities Provisions
• Current Liabilities
• Provisions
• Other Provisions

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• Sweat shares means
• Equity shares issued by the company to employees
  or directors
• at a discount, or
• for consideration other than cash
• -for providing know how
• -making available right in the nature of
  intellectual property rights
• -value additions
• shares should be of the same class which have
  already been issued
• it should be authorized by members by passing
  resolution in the General meeting
• it should be issued in accordance with the
  regulations made by the SEBI

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• Under Employees Stock Option Scheme, the company
  grants option to an employee
• to apply for shares at a pre-determined price
• the right to be exercised during a specified
  period
• listed companies have to follow SEBI guidelines
  for ESOS

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COMPANY Accounts

• The Assets side of the balance sheet shows the
  following sequence
• Fixed Assets
• Investments
• Current assets, Loans and Advances
• Current Assets
• Loans Advances
• Miscellaneous Expenditure
• Profit Loss account (Debit balance, if any)

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COMPANY Accounts

• With regard to Share Capital, the company should
  specifically state
• Details of Authorised, Issued, Subscribed, Called
  up and Paid up capitals
• Details of number of shares and face value of
  each share
• Amount called up on each share
• Classes of shares-Preference or Equity with or
  without voting rights
• Shares allotted as fully paid for consideration
  other than cash
• Shares issued as bonus shares and source

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COMPANY Accounts

• RESERVES AND SURPLUS
• Capital Reserve
• Capital redemption Reserve
• Share Premium Account
• Other reserves
• Less Debit balance in P L A/c, if any
• Surplus (Balance in the P L appropriation A/c)
• Proposed additions to reserves
• Sinking funds

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COMPANY Accounts

• SECURED LOANS
• Debentures
• Loans and advances from banks
• Loans and advances from Subsidiaries
• Other Loans and advances

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COMPANY Accounts

• UNSECURED LOANS
• Fixed deposits
• Loans and advances from subsidiaries
• Short term loans Advances
• from Banks
• From Others
• 4. Other loans and advances
• (a.)from Banks
• (b) From Others

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COMPANY Accounts

• CURRENT LIABILITIES PROVISIONS
• (A) Current Liabilities
• Acceptances
• Sundry Creditors
• Subsidiary companies
• Advance payment and unexpired discounts
• Unclaimed dividends
• Other liabilities (if any)
• Interest accrued but not due on loans

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COMPANY Accounts

• FIXED ASSETS
• Goodwill
• Land
• Buildings
• Leaseholds
• Railway sidings
• Plant Machinery
• Furniture fittings
• Development of property
• Patents, trade marks designs
• Live stock
• Vehicles, etc.

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COMPANY Accounts

• The fixed assets must be
• Classified and distinguished
• The following details are required to be shown
  separately
• original cost,
• additions during the year,
• deductions there from during the year,
• Total depreciation written off or provided up to
  the end of the year

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COMPANY Accounts

• INVESTMENTS
• Investments in Government or trust securities
• Investment in shares, Debentures or bonds
• Investment in immovable properties
• Investment in the capital of partnership firms
• Balance of un-utilised monies raised by issues

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COMPANY Accounts

• The followings must be clearly stated with
  regard to Investments
• Nature of Investments
• Mode of valuation (Cost or market value)
• Classification of Investments

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COMPANY Accounts

• CURRENT ASSETS LOANS ADVANCES
• Current Assets
• Interest accrued on investments
• Stores and spare parts
• Loose tools
• Stock in trade
• Sundry Debtors
• Cash in hand
• Bank balances
• With scheduled banks
• With others

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COMPANY Accounts

• In respect of Sundry Debtors following details
  are to be shown
• Debts considered good and in respect of which the
  company is fully secured
• Debts considered good for which the company holds
  no security other than personal security of
  debtors
• Debts considered doubtful or bad

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COMPANY Accounts

• Loans Advances
• Advances and loans
• Bills of Exchange
• Advances receivable in cash or kind or for value
  to be received
• Balances on current accounts
• Balances with Customs, Port trust, etc. (where
  payable on demand)

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COMPANY Accounts

• Miscellaneous expenditure is shown in the
  following sequence on the assets side of the
  balance sheet
• Preliminary expenses
• Expenses including commission or brokerage on
  underwriting or subscription of shares or
  debentures
• Discount allowed on issue of shares or debentures
• Interest paid out of capital during construction
• Development expenditure not adjusted
• Other items

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BANKING ACCOUNTS

• What is true about a Banking Company?
• A company that carries on the business of Banking
  in India.
• It generally governed by the Provisions of the
  Companies Act, 1956.
• It is specifically governed by the Banking
  Regulation Act.

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BANKING ACCOUNTS

• The Major institutions that are carrying on
  business of banking in India are
• Nationalised Banks
• State Bank of India and their associates
• Foreign Banks having branches in India
• Co-operative Banks
• Rural Banks
• Private Sector Banks

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BANKING ACCOUNTS

• Main functions of modern commercial Banks are
• Accepting money on deposits.
• Facilities to depositors for making payments by
  cheques.
• Granting of loans and advances.
• Dealing in securities on its own account or on
  behalf of customer.
• Opening letters of credit and issuing Guarantees
• Dealing in Foreign Exchange
• Transferring money from one place to another in
  the form of Demand Draft, Telegraphic Transfers,
  Travellers Cheques and bills.
• Acting as Trustees and Executors.
• Dealing in Merchant Banking

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BANKING ACCOUNTS

• Bankers Books include
• Ledgers
• Day Books
• Cash Books
• Account Books
• All other records used in the ordinary business
  of a bank

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BANKING ACCOUNTS

• Third Schedule Form A
• Form of Balance Sheet
• Balance Sheet as on 31st March,.
• Capital and Liabilities Schedule Rs
• Capital 1 .
• Reserves and Surplus 2 .
• Deposits 3 .
• Borrowings 4 .
• Other Liabilities and Provisions 5 .
• Total .
• .

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BANKING ACCOUNTS

• Assets Schedule No. Rs.
• Cash and Balance with RBI 6 .
• Balance with Banks and
• Money at call and Short Notice 7 .
• Investments 8 .
• Advances 9 .
• Fixed Assets 10 .
• Other Assets 11 .
• Total
• Contingent Liabilities 12

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BANKING ACCOUNTS

• The various items in schedule-1(Capital) in
  Balance Sheet(Form A) includes
• For Nationalised Banks- Capital
• For Banks incorporated outside India- Start up
  capital as prescribed by RBI Amount of deposit
  kept with RBI under section 11(2) of BR Act,1949.
• For other Banks- i) Authorised Capital (shares
  of Rs.each)
• ii) Issued Capital
  --do-
• iii) Subscribed Capital
  --do
• iv) Called-up Capital
  --do
• v)Less call unpaid Add
  Forfeited Shares

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BANKING ACCOUNTS

• The various items in schedule-2(Reserve and
  Surplus) in Balance Sheet(Form A)
• includes
• Statutory Reserves(opening Balance Additions
  and Deductions during the
• year).
• Capital Reserves ( ----------------
  do-------------------------------------------).
• Share Premium ( ----------------
  do-------------------------------------------).
• Revenue and other Reserves ( ----------------
  do---------------------------).
• Balance in Profit and Loss Account.
• Total(abcde)

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BANKING ACCOUNTS

• The various items in schedule-3(Deposits) in
  Balance Sheet(Form A) includes
• a) (I) Demand Deposits-- ( i )From
  Banks, ii) From Others.
• (II) Savings Bank Deposits
• (III) Term Deposits i)From Banks,
  ii) From Others
• (IV) Total (I II III)
• b) (I) Deposits of Branches in India
• (II) Deposits of Branches Outside
  India

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BANKING ACCOUNTS

• The various items in schedule-4(Borrowings) in
  Balance Sheet(Form A) includes
• Borrowings in India (reserve Bank of India Other
  Banks Other Institutions
• and agencies)
• Borrowings outside India
• Total(a b)
• Secured Borrowings in a b above

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BANKING ACCOUNTS

• The various items in schedule-5(other Liabilities
  and Provisions) in Balance
• Sheet(Form A) includes
• Bills Payable
• Inter-office Adjustments(net)
• Interest Accrued
• Others(including Provisions)

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BANKING ACCOUNTS

• The various items in schedule-6(Cash and Balances
  with RBI) in Balance
• Sheet(Form A) includes
• Cash in Hand (including foreign currency notes)
• Balances with RBI in(Current Account, other
  Accounts)
• Total(a b)

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BANKING ACCOUNTS

• The various items in schedule-7(Balance with
  Banks Money at call and short
• notice) in Balance Sheet(Form A)
  includes
• In India
• i) Balance with banks (in Current Accounts in
  Other Deposit Accounts)
• ii) Money at Call and Short Notice (With Banks
  With other Institutions)
• Total( i ii )
• Outside India
• i) In Current Accounts
• ii) In other Deposit Accounts
• iii) Money at Call and Short Notice
• Total (i ii iii)
• Grand Total (a b)

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BANKING ACCOUNTS

• The various items in schedule-8(Investments) in
  Balance Sheet(Form A) includes
• Investments in India in
• i) Govt. Securities
• ii) Other Approved Securities
• iii) Shares
• iv) Debentures and Bonds
• v) Subsidiaries and/or Joint Ventures
• vi) Others (to be specified

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BANKING ACCOUNTS

• Investments Outside India in
• i) Govt.Securities (including Local Authorities)
• ii) Subsidieries and/or Joint Ventures abroad
• iii) Other Investment (to be specified)
• Total
• Grand Total (a and b)

66
BANKING ACCOUNTS

• . The various items in schedule-9(Advances) in
  Balance Sheet(Form A) includes
• i) Bill Discounted and Purchased
• ii) Cash Credits, Overdrafts and Loans Payable on
  Demand
• iii) Term Loans
• Total
• i) Secured by Tangible Assets
• ii) Covered by Bank/Govt. Guarantees
• iii) Unsecured
• Total

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BANKING ACCOUNTS

• I. Advances in India
• i) Priority Sectors
• ii) Public Sector
• iii) Banks
• iv) Others
• Total
• II. Advances Outside India
• i) Due from Banks
• ii) Due from Others( Bills Purchased and
  Discounted, Syndicated Loans,
• Others)
• Total
• Grand Total( I and II )

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BANKING ACCOUNTS

• The various items in schedule-10(Fixed Assets) in
  Balance Sheet(Form A) includes
• Premises
• At cost as on 31st March of the preceding
  year
• Additions during the year
• Deductions during the year
• Depreciation to date
• Other Fixed Assets(Including Furniture and
  Fixture)
• At cost on 31st March of the preceding year
• Additions during the year
• Deductions during the year
• Depreciation to date
• Total (a b)

69
BANKING ACCOUNTS

• . The various items in schedule-11(Other Assets)
  in Balance Sheet(Form A)
• includes
• Inter-Office Adjustments
• Interest Accrued
• Tax Paid in Advance/Tax Deducted at source
• Stationery and Stamps
• Non-banking Assets acquired in satisfaction of
  claims
• Others (any unadjusted balance of loss, when the
  loss exceeds the aggregate of capital, Reserves
  and Surplus)

70
BANKING ACCOUNTS

• . The various items in schedule-12(Contingent
  Liabilities) in Balance Sheet(Form A)
• includes
• Claims against the Bank not acknowledged as debts
• Liability for partly paid investments
• Liability on account of Outstanding Forward
  Exchange Contracts
• Guarantees given on behalf of constituents
• i) In India
• ii) Outside India
• Acceptances, Endorsements and other Obligations
• Other items for which the Bank is contingently
  liable
• Total

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BANKING ACCOUNTS

• . Cash and Balance with the Reserve Bank of India
  includes
• Cash in hand including foreign currency notes.
• Balance with RBI in current account and in other
  accounts.
• It includes cash in hand including foreign
  currency notes and also of foreign branches in
  case of banks having such branches.

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BANKING ACCOUNTS

• Balances with other Banks and Money at Call and
  Short Notice includes
• Balances with Banks in India including
  co-operative Banks, in current accounts and in
  other Deposit accounts shown separately.
• Money at call and short notice with banks and
  other institutions. It represents loans given by
  one bank to other for a short period. Call loans
  are repayable at any time the banker recalls
  while short notice advances are repayable within
  short notice say, 24 hours to maximum period of
  two weeks. It also includes deposits repayable
  within 15 days notice lent in the inter-bank call
  money market.
• Balances in current accounts and deposit accounts
  outside India which includes balances held by
  foreign branches and branches of Indian Banks
  outside India.
• Money at call and short notice in foreign
  countries.

73
BANKING ACCOUNTS

• Investment in India includes
• Central and State Govt. securities and govt.
  treasury bills shown at the book value.
  Difference between the book value and market
  value should be mentioned in notes.
• Other than govt. securities which are treated as
  approved securities as per BR Act,1949.
• Investments in shares, debentures and bonds of
  companies and corporations not included above.
• Investments in Subsidiaries/Joint Ventures
  (including RRBs)
• Residual investments if any, like Gold,
  commercial paper and instruments in the nature of
  share/debentures/bonds.

74
BANKING ACCOUNTS

• Investment outside India includes
• All foreign government securities including
  securities issued by local
• authorities.
• Investments made in the share capital of
  subsidiaries floated outside India
• and/or joint ventures abroad.
• All other investments made outside India.

75
BANKING ACCOUNTS

• . The various items in Schedule 13 (Interest
  Earned) of Profit and Loss Account
• (Form B) includes
• Interest/Discount on Advances/Bills
• Income on Investments
• Interest on balances with RBI and other
  inter-bank funds
• Others

76
BANKING ACCOUNTS

• The various items in Schedule 14 (Other Incomes)
  of Profit and Loss Account
• (Form B) includes
• Commission, Exchange and Brokerage
• Profit on Sale of Investments
• Less Loss on sale of investments
• Profit on Revaluation of Investments
• Less Loss on Revaluation of Investments
• Profit on Sale of Land/Building and other Assets
• Less Loss on sale of Land, Building Other
  assets
• Profit on Exchange Transactions
• Less Loss on Exchange Transactions
• Income earned by way of dividends, etc., from
  subsidiaries, companies and/or joint ventures
  abroad/in India
• Misc. Income

77
BANKING ACCOUNTS

• The various items in Schedule 15 (Interest
  Expended) of Profit and Loss Account
• (Form B) includes
• Interest on deposits
• Interest on RBI/Inter-Bank Borrowings
• Others

78
BANKING ACCOUNTS

• . The various items in Schedule 16 (Operating
  Expenses) of Profit and Loss Account
• (Form B) includes
• Payments to and Provisions for Employees
• Rent, Taxes and Lighting
• Printing and Stationery
• Advertisement and Publicity
• Depreciation on Banks property
• Directors fees, Allowances and Expenses
• Auditors fees and expenses (Including Branch
  Auditors)
• Law Charges
• Postages, Telegrams, Telephones etc.
• Repairs and Maintenance
• Insurance
• Other Expenditure

79
BANKING ACCOUNTS

• . Interest Earned (schedule 13) includes
• Interest/discount on Advances/bills includes
  interest and discount on all types
• of loans and advances like Cash Credit,
  demand loans, overdrafts, export
• loans, term loans, domestic and foreign bills
  purchased and
• discounted (including those rediscounted),
  overdue interest and also interest
• subsidy, if any, relating to such
  advances/bills.
• Income on investments Includes all income
  derived from the investment portfolio by way of
  interest and dividend.
• Interest on Balances with RBI and other
  inter-bank funds includes interest on balances
  with Reserve Bank and other banks, call loans,
  money market placements, etc.
• Others Includes any other interest/discount
  income not included in the above heads.

80
BANKING ACCOUNTS

• Other Incomes (schedule 14) includes
• Commission, Exchange and Brokerage includes all
  remuneration on services
• such as commission on collection,
  commission/exchange on remittances and
• transfers, commission on letters of credit,
  letting out of lockers, guarantees,
• commission on Govt. business, commission on
  the other permitted agency
• business including consultancy and other
  services, brokerage etc., on securities
• excluding foreign exchange income.
• Profit on sale of investments less loss on sale
  of investments.
• Profit on revaluation of investments less loss on
  revaluation of investments.

81
BANKING ACCOUNTS

• Profit on sale of Land, buildings and other
  assets less loss on sale of land, buildings and
  other assets. It also includes profit/loss on
  sale of securities, furniture, land and
  buildings, motor vehicle, gold, silver etc.(only
  net position to be shown and net loss should be
  shown as deduction).
• Profit on Exchange transaction less loss on
  Exchange transaction. It includes profit/loss on
  dealing in Foreign Exchange, all income earned by
  way of foreign exchange, commission and charges
  on foreign exchange transactions excluding
  interest which will be shown under interest.
  (only net position to be shown and net loss
  should be shown as deduction. (only net position
  to be shown and net loss should be shown as
  deduction).
• Income earned by way of dividends, etc., from
  subsidiaries, companies, joint ventures abroad/in
  India.
• Miscellaneous Income Includes recoveries from
  constituents for Godown rents, income from bank
  properties, security charges, insurance etc., and
  any other miscellaneous income. In case any item
  under this head exceeds one percentage of the
  total income, particulars may be given in the
  notes.

82
BANKING ACCOUNTS

• Interest Expenses (schedule 15) includes
• Interest on deposits Includes interest paid on
  all types of deposits from banks and other
  institutions.
• Interest on RBI/Inter-bank borrowings Include
  discounts/interest on all borrowings and
  refinance from RBI and other banks.
• Others Includes discount/interest on all
  borrowings/refinance, penal interest paid, etc.

83
BANKING ACCOUNTS

• Operating Expenses (schedule 16) includes
• Payments to and provisions for employees
  Includes staff salaries/wages, allowances, bonus,
  other staff benefits like provident fund,
  pension, gratuity, leave fare concessions, staff
  welfare medical allowance to staff.
• Rent, Taxes and lighting Includes rent paid by
  the banks on buildings and other municipal and
  other taxes paid excluding income tax and
  interest tax, electricity and other similar
  charges and levies. House rent allowance and
  other similar payments to staff should appear
  under the head Payment to and provisions for
  employees.

84
BANKING ACCOUNTS

• Printing and stationery Includes books and forms
  of stationery used by the bank and other printing
  charges which are not incurred by way of
  publicity expenditure.
• Advertisement and publicity Includes expenditure
  incurred by the bank for advertisement and
  publicity purposes including printing charges of
  publicity matter.
• Depreciation on banks property Includes
  depreciation on banks own property, motor cars
  and other vehicles, furniture, electric fittings,
  vaults, lifts, leasehold properties, non-banking
  assets etc.

85
BANKING ACCOUNTS

• Directors fees, allowances and expenses
  Includes sitting fees and all other items of
  expenditure incurred on behalf of directors. The
  daily allowance, hotel charges, conveyance
  charges etc., which though in the nature of
  reimbursement of expenses incurred may be
  included under this head. Similar expenses of
  local committee members may be included under
  this head.
• Auditors fees and expenses (Including branch
  auditors fees and expenses) Includes the fees
  paid to the statutory auditors and branch
  auditors for professional services rendered and
  all expenses for performing their duties, even
  though they may be in the nature of reimbursement
  of expenses. If external auditors have been
  appointed by bank themselves for internal
  inspection and audits and other services, the
  expenses incurred in that context including fees
  may not be included under this head but shown
  under Other expenditure.
• Law charges includes all legal expenses and
  reimbursement of expenses incurred in connection
  with legal services.

86
BANKING ACCOUNTS

• Postage, telegrams, telephones etc. Includes all
  postage charges like stamps, telegram,
  telephones, teleprinters etc.
• Repairs and Maintenance Includes repairs to
  banks property, their maintenance charges.
• Insurance Includes insurance charges on banks
  property, insurance premium paid to DICGC etc.,
  to the extent they are not recovered from the
  concerned parties.
• Other expenditures Includes all expenses other
  than those not included in any of the other heads
  like, license fees, donations, subscriptions to
  papers, periodicals, entertainment expenses,
  travel expenses, etc. In case any particular item
  under this head exceeds one percentage of the
  total income, particulars may be given in the
  notes.

87
BANKING ACCOUNTS

• The Provisions and Contingencies include
• Provisions made for bad and doubtful debts
• Provisions for taxation
• Provision for diminution in the value of
  investments
• Transfers to contingencies

88
BANKING ACCOUNTS

• Money At Call and Short Notice?
• It relates to inter-bank transactions
• Banks having short supply of money borrow from
  banks having surplus money.
• Money is borrowed usually for 1 to 14 days.
• The rate of interest fluctuates everyday and even
  within a day.

89
BANKING ACCOUNTS

• Advances?
• includes Loans, Cash Credit and Overdraft
• Loan is an advance which has fixed amount and
  fixed period.
• Cash Credit is an arrangement where banks agree
  to lend money to borrowers up to a fixed limit
  against Hypothecation or Pledge of securities.
  However the borrower need not avail the whole
  amount in one go.
• Overdraft is an arrangement where customer is
  permitted to overdraw money in his current
  account up to a certain limit against securities
  like, L.I.C. Policy, FDRs, National Saving
  Certificates, Quoted shares etc.

90
BANKING ACCOUNTS

• Bills receivable being Bills for collection as
• per contra?
• It is a contra item in the Balance Sheet.
• Bills received being bills for collection
  account denotes the amounts receivable and is
  shown on assets side of the balance sheet.
• Bills for collection being Bills receivable
  account denotes the amount payable to the
  customer and is shown in the liabilities side of
  the balance sheet.

91
BANKING ACCOUNTS

• Acceptance Endorsements and other
• Obligations?
• It represents liabilities, which the bank assumes
  on behalf of its customers.
• The various ways in which a bank may accommodate
  its customers are, opening of L/C, accepting
  bills on behalf of customers, making endorsements
  on Promissory Note prepared by customers, issuing
  Letter of Guarantee.
• The bank obtains counter Guarantee from its
  customers to meet the third party liabilities.
• It creates contra item in balance sheet.
• The account Constituents liability for
  acceptances, endorsements or other obligations
  appears in the asset side of the balance sheet.
• The account Acceptances, Endorsements and other
  Obligations appears in the liabilities side of
  the balance sheet.

92
BANKING ACCOUNTS

• , Non-Banking Assets?
• This relates to assets, which are not acquired by
  the banks, but against security of which Loan is
  given.
• In case of non-payment of loan amount such
  securities are taken in possession for recovery.
• Profit or loss on disposal of such assets are
  disclosed separately in the Profit and Loss
  account.

93
BANKING ACCOUNTS

• Investment by banks include
• Government Securities
• Debentures and Bonds
• Subsidiaries/Joint Ventures
• Shares
• Approved securities
• Others(Commercial papers, units of mutual fund
  etc.)

94
BANKING ACCOUNTS

• Prepare the Profit and Loss account of X Bank
  Ltd. for the year ended 31st March, 2003, from
  the following
•   Rs
• Interest on Fixed Deposits 1,62,410
• Rebate on Bills discounted 29,000
• Interest on Loans 45,000
• Commission Charged to Customers 62,500
• Establishment 15,000
• Discount on Bills Discounted 89,000
• Interest on Cash Credit 24,000
• Amount Charged against Current Accounts 71,500
• Directors Fees 10,000
• Audit Fees 20,000
• Postage and Telegram 2,000
• Printing and Stationery 4,000
• Rent and Taxes 22,500
• Interest on Overdrafts 71,000
• Sundry Charges 1,500
• Interest on Savings Bank Deposits 57,780

95
BANKING ACCOUNTS

• Profit Loss Account for the year ended 31st
  March 2003
• Schedule No. Rs
• I. Income
• Interest Earned 13 2,71,500
• Other Income 14 62,500
• Total 3,34,000
• II. Expenditure
• Interest Expended 15 2,20,190
• Operating Expenses 16 75,000
• Provision for Contingencies
• Total 2,95,190
• III. Profit
• Net Profit for the year 38,810

96
BANKING ACCOUNTS

• Schedules to be annexed with Profit and Loss
  Account
• Schedule13 Interest Earned
• Interest on
• Loan 45,000
• Cash Credit 24,000
• Overdrafts 71,000 1,40,000
• Discount on Bills discounted 89,000
• Less Rebate on Bill Discounted 29,000 60,000
• Amount charged against current accounts
  71,500
• 2,71,500
• Schedule 14 Other Income
• Commission charged to customer 62,500
• Schedule 15 Interest Expended
• Interest paid on
•       Fixed Deposits 1,62,410
•       Savings Bank Deposits 57,780
• 2,20,190

97
BANKING ACCOUNTS

• Schedule 14 Other Income
• Commission charged to customer 62,500
• Schedule 15 Interest Expended
• Interest paid on
•       Fixed Deposits 1,62,410
•       Savings Bank Deposits 57,780
• 2,20,190

98
BANKING ACCOUNTS

• Schedule 16 Operating Expenses
• Establishment Expenses 15,000
• Directors Fees 10,000
• Audit Fees 20,000
• Rent and Taxes 22,500
• Postage and Telegrams 2,000
• Printing and Stationery 4,000
• Sundry Expenses 1,500
• 75,000

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