Module D - Final Accounts of Banks & Companies - Presentation

8/4/2019 Module D - Final Accounts of Banks & Companies - Presentation

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JAIIB - Accounting &Finance for Bankers

MOD-D Final Accounts of

Banks & Companies

Prof. RAVISHANKAR ULLAL

CFOTODAYS WRITING PRODUCTS


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FINAL ACCOUNTS

The most important objective of accounting is toascertain

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 bypreparing the final accounts, which comprise of:

Profit & Loss Account & Balance Sheet


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FINAL ACCOUNTS

Summary of those accounts which affect theprofit and loss of a business concern is called

Income Statement

The income statement has normallyIncome statement comprises of Trading andProfit & Loss Account. They have two parts-thefirst part is called Trading account which reveals

gross profit or gross loss, and the second part iscalled Profit & Loss account to show net profit ornet loss.


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FINAL ACCOUNTS

In a trading concern direct expensesinclude:

all expenses in bringing the goods to the

godown of the firm and in making themready for sale, like freight paid onpurchases, cartage, octroi, custom duty,carriage inward, etc.

all expenses for sale and distribution ofgoods.


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FINAL ACCOUNTS

In a manufacturing concern direct expensesinclude:

all expenses incurred for production of goods

(like wages, power and fuel, Factory lighting,,factory rent and rates) and all expenses incurredin bringing the goods to the godown of the firmand 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 acquiredfor

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 arenormally passed for

Transfer of all manufacturing and purchase

expense to the debit side of trading a/c Transfer of Purchases and Sales return to thedebit 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 andfinancial 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 PartnershipAccounts

The important features of partnership are

It is a relationship between persons

There should be minimum two persons to form apartnership

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 themacting for all or by more than one, or by all of thepartners


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Following details should be incorporated in the Partnership deed asdifferent 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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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 ofthem is deceased and the method of payment

Treatment of losses arising out of the insolvency of apartner. Whether Garner vs. Murray rule will be

applicable to them or not. Procedure to be followed for settlement of disputesamong partners

Preparation of accounts and their audit.


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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 themanagement

Better products


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Its reputation, super profit earning capacity of afirm

Necessity

change in profit sharing ratio Admission, retirement, death

Sale of business

Methods: Average profit

Super profit

capitalization of profit


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Average profit(AP) Super profi(SP) Capitalization of profit

AP x Multiplier SP x multiplier

SP = AP less NP

NP=normal profit (Capitalised value) less Actual

Multiplier is given Multiplier is given CAPITAL


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Goodwill on capitalization basis can becalculated 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 businessand the capital employed

This will be the value of goodwill of the firm


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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 partnershipfirmbased on past few years figures

Determine the normal rate of teturn prevailing in theindustry or locality for the similar firms

Apply normal rate of return on capital employed to arriveat normal profit

Deduct normal profit from the average profit of the firm. Ifthe average profit of the firm is more than the normalprofit, there exists super profit


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The following adjustments are made in theaccounts of a partnership when a new partner isadmitted

Changes in profit sharing proportions Valuation of goodwill

Distribution of accumulated profits and reservesby existing partners

Re-valuation of assets and liabilities Re-structuring of capitals

Preparation of a new balance sheet


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When a new partner takes admission, he acquires theownership rights of the assets and also makes himselfresponsible for the firms liabilities. It, therefore, becomesnecessary to scrutinize the balance sheet carefully so

that new partner should not get any benefit from theappreciation in the value of assets or reduction in thevalue of liabilities, nor he should suffer because of anydecrease 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 istransferred to the old partners capital accounts in theirold profit sharing ratio


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When the capital of the new partner is fixed on the basisof the combined capital of old partners, it requiresfollowing 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 minusproportion ofnew partner.

3. Based on the balance of old partners capital and theirshare, calculate the capital for full one share of profits.

4. On this basis calculate the share of new partner.


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When the capital of the old partners is fixed on the basisof capital brought in by the new partner, it requiresfollowing steps:

1. Post all entries relating to all partners capital accountsand arrive at the closing balances.

2. Based on the balance of new partners capital and hisshare, calculate the capital for full one share of profits.

3. Calculate the balances that each old partner shouldhold keeping in view the total amount of capital multipliedwith his proportion.

The capital accounts of old partners may show debit orcredit balances. If debit balance, it shows the amount tobe brought in by that partner. If it shows credit balance,the excess amount may either be paid back to him ormay be transferred to his current account.


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Let us say A and B are partners sharing profitsequally. They take C as partner with equalshare. The position will be as under:

Partners Old Ratio New RatioLoss(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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Let us suppose A, B, and C are partners sharing profits and lossesin the ratio of 5 : 3 : 2. A retires and B and C agree to continue atthe 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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When a memorandum revaluation account isprepared, firstly the effect of changes in thevalue of assets and liabilities is transferred to the

old partners capital accounts in their old ratio.Simultaneously, the entries are reversed and thebalance is transferred to all the partners ,including the new,in their new profit sharing

ratio. This nullifies the effect of changes in thevalue of assets and liabilities of the firm and thecapitals of the partners are adjusted.


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On the death of a partner the executors or representatives of thedeceased 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 shareof 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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If the death takes place in the middle of accountingperiod, the deceased partner is entitled to his share inprofit or loss upto the date of his death. The amount canbe determined by

(i)preparing final accounts up to the date of death, or

(ii) an estimated share in profit or loss is determined onthe 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 intocontract 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 ascompanys signature and is affixed in all important documents and contracts as per the resolutionspassed 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 toenhance its minimum paid up capital ( i.e. One Lakh rupees or Five Lakh rupees, as the case maybe) 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 asBoard 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 is50. In the case of public limited company, the minimum number of membersis 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 inthe 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 propertyrights -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 anemployee

to apply for shares at a pre-determinedprice

the right to be exercised during a

specified period listed companies have to follow SEBIguidelines for ESOS


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COMPANY Accounts

The Assets side of the balance sheet showsthe 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 shouldspecifically state:

Details of Authorised, Issued, Subscribed, Called up andPaid up capitals

Details of number of shares and face value of eachshare

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 thancash

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 statedwith 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 followingdetails are to be shown:

Debts considered good and in respect of

which the company is fully secured

Debts considered good for which thecompany 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 forvalue 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 followingsequence 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 ofBanking in India.

It generally governed by the Provisions ofthe Companies Act, 1956.

It is specifically governed by the BankingRegulation Act.


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BANKING ACCOUNTS

The Major institutions that are carrying onbusiness 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 ordinarybusiness 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

AssetsSchedule 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 BalanceSheet(Form A) includes:

For Nationalised Banks- Capital For Banks incorporated outside India- Start up capital as

prescribed by RBI + Amount of deposit kept with RBIunder section 11(2) of BR Act,1949.

For other Banks- i) Authorised Capital (shares ofRs.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 BalanceSheet(Form A)

includes:

Statutory Reserves(opening Balance + Additions and Deductionsduring the

year). Capital Reserves ( ---------------- do-------------------------------------------). Share Premium ( ---------------- do-------------------------------------------). Revenue and other Reserves ( ---------------- do---------------------------). Balance in Profit and Loss Account. Total(a+b+c+d+e)


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BANKING ACCOUNTS

The various items in schedule-3(Deposits) inBalance 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) inBalance 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(otherLiabilities 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 andBalances with RBI) in Balance

Sheet(Form A) includes:

Cash in Hand (including foreign currencynotes)

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 calland 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) inBalance 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 LocalAuthorities)

ii) Subsidieries and/or Joint Venturesabroad

iii) Other Investment (to be specified)

Total:

Grand Total (a and b)


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BANKING ACCOUNTS

. The various items in schedule-9(Advances) in BalanceSheet(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, SyndicatedLoans,

Others)

Total: Grand Total( I and II )


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BANKING ACCOUNTS

The various items in schedule-10(Fixed Assets) in BalanceSheet(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)


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BANKING ACCOUNTS

. The various items in schedule-11(Other Assets) inBalance 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 lossexceeds the aggregate of capital, Reserves and Surplus)


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BANKING ACCOUNTS

. The various items in schedule-12(Contingent Liabilities) in BalanceSheet(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 ofIndia includes:

Cash in hand including foreign currency notes.

Balance with RBI in current account and in otheraccounts.

It includes cash in hand including foreigncurrency notes and also of foreign branches incase of banks having such branches.

BANKING ACCOUNTS


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BANKING ACCOUNTS

Balances with other Banks and Money at Call and Short Noticeincludes:

Balances with Banks in India including co-operative Banks, incurrent accounts and in other Deposit accounts shown separately.

Money at call and short notice with banks and other institutions. Itrepresents loans given by one bank to other for a short period. Call

loans are repayable at any time the banker recalls while short noticeadvances are repayable within short notice say, 24 hours tomaximum period of two weeks. It also includes deposits repayablewithin 15 days notice lent in the inter-bank call money market.

Balances in current accounts and deposit accounts outside Indiawhich includes balances held by foreign branches and branches of

Indian Banks outside India. Money at call and short notice in foreign countries.

BANKING ACCOUNTS


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BANKING ACCOUNTS

Investment in India includes: Central and State Govt. securities and govt. treasury bills

shown at the book value. Difference between the bookvalue 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 paperand instruments in the nature ofshare/debentures/bonds.

BANKING ACCOUNTS


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BANKING ACCOUNTS

Investment outside India includes:

All foreign government securities includingsecurities issued by local

authorities.

Investments made in the share capital ofsubsidiaries floated outside India

and/or joint ventures abroad.

All other investments made outside India.

BANKING ACCOUNTS


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BANKING ACCOUNTS

. The various items in Schedule 13 (InterestEarned) 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

BANKING ACCOUNTS


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BANKING ACCOUNTS

The various items in Schedule 14 (Other Incomes) of Profit and LossAccount

(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

BANKING ACCOUNTS


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BANKING ACCOUNTS

The various items in Schedule 15 (InterestExpended) of Profit and Loss Account

(Form B) includes:

Interest on deposits

Interest on RBI/Inter-Bank Borrowings

Others

BANKING ACCOUNTS


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BANKING ACCOUNTS

. The various items in Schedule 16 (Operating Expenses) of Profit and LossAccount (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

BANKING ACCOUNTS


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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 andalso 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: includesinterest on balances with Reserve Bank and other banks, call loans,money market placements, etc.

Others: Includes any other interest/discount income not included inthe above heads.

BANKING ACCOUNTS


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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.

BANKING ACCOUNTS


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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 positionto be shown and net loss should be shown as deduction).

Profit on Exchange transaction less loss on Exchange transaction. Itincludes profit/loss on dealing in Foreign Exchange, all income earned byway of foreign exchange, commission and charges on foreign exchange

transactions excluding interest which will be shown under interest. (only netposition to be shown and net loss should be shown as deduction. (only netposition 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 Godownrents, income from bank properties, security charges, insurance etc., and

any other miscellaneous income. In case any item under this head exceedsone percentage of the total income, particulars may be given in the notes.

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BANKING ACCOUNTS

Interest Expenses (schedule 15) includes;

Interest on deposits: Includes interest paid on alltypes of deposits from banks and other

institutions. Interest on RBI/Inter-bank borrowings: Include

discounts/interest on all borrowings andrefinance from RBI and other banks.

Others: Includes discount/interest on allborrowings/refinance, penal interest paid, etc.

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BANKING ACCOUNTS

Operating Expenses (schedule 16) includes: Payments to and provisions for employees: Includes

staff salaries/wages, allowances, bonus, other staffbenefits like provident fund, pension, gratuity, leave fareconcessions, staff welfare medical allowance to staff.

Rent, Taxes and lighting: Includes rent paid by the bankson buildings and other municipal and other taxes paidexcluding income tax and interest tax, electricity andother similar charges and levies. House rent allowance

and other similar payments to staff should appear underthe head Payment to and provisions for employees.

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BANKING ACCOUNTS

Printing and stationery: Includes books and forms ofstationery used by the bank and other printing chargeswhich are not incurred by way of publicity expenditure.

Advertisement and publicity: Includes expenditureincurred by the bank for advertisement and publicitypurposes including printing charges of publicity matter.

Depreciation on banks property: Includes depreciationon banks own property, motor cars and other vehicles,furniture, electric fittings, vaults, lifts, leasehold

properties, non-banking assets etc.

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BANKING ACCOUNTS

Directors fees, allowances and expenses: Includes sitting fees andall other items of expenditure incurred on behalf of directors. Thedaily allowance, hotel charges, conveyance charges etc., whichthough in the nature of reimbursement of expenses incurred may beincluded under this head. Similar expenses of local committeemembers may be included under this head.

Auditors fees and expenses (Including branch auditors fees andexpenses): Includes the fees paid to the statutory auditors andbranch auditors for professional services rendered and all expensesfor performing their duties, even though they may be in the nature ofreimbursement of expenses. If external auditors have beenappointed by bank themselves for internal inspection and audits andother services, the expenses incurred in that context including fees

may not be included under this head but shown under Otherexpenditure.

Law charges: includes all legal expenses and reimbursement ofexpenses incurred in connection with legal services.

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BANKING ACCOUNTS

Postage, telegrams, telephones etc.: Includes all postage chargeslike 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, travelexpenses, etc. In case any particular item under this head exceedsone percentage of the total income, particulars may be given in the

notes.

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BANKING ACCOUNTS

The Provisions and Contingencies include:

Provisions made for bad and doubtfuldebts

Provisions for taxation

Provision for diminution in the value ofinvestments

Transfers to contingencies

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BANKING ACCOUNTS

Money At Call and Short Notice?

It relates to inter-bank transactions

Banks having short supply of moneyborrow from banks having surplus money.

Money is borrowed usually for 1 to 14days.

The rate of interest fluctuates everydayand even within a day.

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BANKING ACCOUNTS

Advances? includes Loans, Cash Credit and Overdraft

Loan is an advance which has fixed amount and fixedperiod.

Cash Credit is an arrangement where banks agree tolend money to borrowers up to a fixed limit againstHypothecation or Pledge of securities. However theborrower 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 toa certain limit against securities like, L.I.C. Policy, FDRs,National Saving Certificates, Quoted shares etc.

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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 accountdenotes the amounts receivable and is shownon assets side of the balance sheet.

Bills for collection being Bills receivable account

denotes the amount payable to the customerand is shown in the liabilities side of the balancesheet.

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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 preparedby customers, issuing Letter of Guarantee.

The bank obtains counter Guarantee from its customers to meetthe 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 balancesheet.

The account Acceptances, Endorsements and other Obligationsappears in the liabilities side of the balance sheet.

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BANKING ACCOUNTS

, Non-Banking Assets?

This relates to assets, which are not acquired bythe 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 Lossaccount.

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BANKING ACCOUNTS

Investment by banks include; Government Securities

Debentures and Bonds

Subsidiaries/Joint Ventures Shares

Approved securities

Others(Commercial papers, units ofmutual fund etc.)

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BANKING ACCOUNTS

Prepare the Profit and Loss account of X Bank Ltd. for the year ended 31st March, 2003, fromthe 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

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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

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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

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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

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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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Module D - Final Accounts of Banks & Companies - Presentation

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Transcript of Module D - Final Accounts of Banks & Companies - Presentation