Transcript 1 - SBI Officer's Association(K)

JAIIB
ACCOUNTING & FINANCE FOR BANKERS
MODULE D
PROF. S.D.BARGIR
JOINT DIRECTOR, IIBF
9.11.2006
[email protected]
MODULE D
1. BALANCE SHEET EQUATION
2. PARTNERSHIP ACCOUNTS
3. COMPANY ACCOUNTS
4. ACCOUNTS OF BANKING COMPANIES
Balance sheet equation
LIABILITIES
ASSETS
Capital
200.00
Fixed assets 700.00
Reserves
200.00
Current
assets
300.00
Term Loans
300.00
Current
Liabilities
Total
300.00
Total
1000.00
1000.00
Balance Sheet Equation
Assets
=
Liabilities
Assets
=
Liabilities (+)
Capital
Liabilities =
Assets (-)
Capital
Capital
Assets (-)
Liabilities
=
B/s Equation
Examples
(1) If the net worth of the business is Rs.1100,fixed assets are
Rs. 600, current assets Rs.400, investments Rs.300,
current liabilities Rs. Nil, what is the amount of claim to
outsiders?
– Rs. 1300l
– Rs. 500
– Rs.200*
– Rs. Nil
(2) Identify the wrong pair
– Outstanding expenses - Nominal account
– Profit and Loss Account (Dr. balance) – Application of
funds
– Net worth less reserves & surplus - Balance in P & L
Account*
– Balance sheet - Financial position
1. The Assets of a business are Rs.500000 and its
capital is Rs.115000. Its liabilities on that date would
be-----a) Rs.615000
b) Rs.385000
c) Rs.500000
d) Rs. 115000
2. A had a capital of Rs.750000. He has also purchased
goods of Rs.150000 on credit from Mr. Saha. The
value of total assets of the entity is----a) Rs.750000
b) Rs.900000
c) Rs.600000
d) Rs.1050000
Partnership Accounts
• Definition
• Methods of maintaining capital a/cs
• Fixed capital method
• Fluctuating capital method
• Partners Loan A/c
• - Int.@ 6%
• Interest on Capital, drawings
• Based on provision in the agreement
Provisions of Partnership Act (apply in
the absence of partnership deed)
• Equal sharing of profits / losses
• No interest on capital as well as on
drawings
• Interest on loan by partner at 6%
• No salary, remuneration or commission for
any extra work done
Goodwill & methods of valuation
Average Profit Super Profit
Method
Method
Average
profit •Super
profit
multiplied by an multiplied by an
agreed multiplier agreed multiplier
•Super
Profit
=Actual
profit
less
Normal
Profit
Capitalisation
of Profit
Method
Normal profit
capitalized by
applying
normal rate of
return
Goodwill- Capitalisation of profit
Method-Example
•
•
•
•
•
•
Capital = Rs.300000
Actual normal profit (NP)= Rs.120000
Normal rate of Return(NRR) = 10%
Capitalisation of Profit= NP /NRR
= (120000/10) *100 = Rs.1200000
Goodwill =1200000 less 30000
=Rs.900000
Admission of a partner
•
•
•
•
•
•
•
Sacrificing ratio= Old ratio less new ratio
Treatment of goodwill
Revaluation of assets & Liabilities
Capital to be brought in by new partner
Adjustment-accumulated losses
Adjustment- Reserves
Adjustment- Capital Accounts of partners
Retirement or Death of a
partner
• Goodwill
• Revaluation of Assets & Liabilities
•
•
•
•
•
New Profit sharing ratio of continuing partner
Share of profit till retirement/ death
Treatment of accumulated reserve/losses
Capital account/current account
Loan account
JOINT LIFE POLICY
Accounting treatment
1. Premium is treated as expense and transferred
to P & L A/c at year end like other expenses.
The amount recd. from Ins. Co. on surrender
of policy or death of partner is treated as
income and transferred to partners’ capital a/c.
2. Premium is treated as asset (Jt. Life Policy
A/c).At the end of every year the diff. between
surrender value and book value is transferred
to P & L A/c. If the amt. recd. From ins. co. is
more than surrender value the excess is
treated as gain and transferred to partners’
capital a/c.
JOINT LIFE POLICY
Accounting treatment
3. Joint Life Policy Reserve A/c (JLPR) is created
by transferring the premium amount from P & L
Appr. A/c. Every year policy is shown at
surrender value and difference between book
Value and surrender value is trans. to JLPR.
Thus Joint Life policy at surrender value appears
at asset side and JLPR (at sur.value) appears at
liabilities side. On receipt of proceeds from Ins.
Co. JLPR a/c is closed by trans. the balance to
Joint Life Policy a/c and the policy amount is
trans. To capital a/c of partners.
EXAMPLES
Choose the correct answer
In the absence of any profit sharing ratio
in a partnership agreement the profits/
losses are to be shared-----•
•
•
•
in proportion to the time devoted in the
partnership business
in proportion to the share capital contributed by
each partner
equally
none of the above
Q.Choose the incorrect statement----a)
b)
c)
d)
e)
A firm can be formed with maximum number of 10 persons
for carrying banking business
A firm can be formed with maximum number of 20 persons
for carrying other business
A firm can be formed with maximum number of 50 persons
for carrying professional services
A private company can be formed with a maximum number
of 50 persons
A public company can be formed with a maximum number
of 1000 persons
Q.Choose the incorrect statement----a)
b)
c)
Issued capital is that capital which is issued to the public. It
cannot exceed authorised capital.
Subscribed capital is that part of the issued capital which
has been actually paid by the shareholders.
Called up capital is that part of the subscribed capital which
has been called from the subscribers.
COMPANY ACCOUNTS
Features of a Joint stock Company
•
•
•
•
•
•
•
•
•
Incorporated association
Artificial person
Perpetual succession
Common seal
Limited liability
Separation of management from ownership
Transferability of shares
Separate legal status
Large membership
Types of companies
On the basis of On the basis of On the basis of
incorporation
ownership
liability
Chartered
company
Private
company
Co.limited
shares
Statutory
company
Public
company
Co. Ltd. by
guarantee
Registered
company
Government
company
Co. with
unlimited
liability
Foreign
company
Holding
company
by
SHARE CAPITAL
• EQUITY
• PREFERENCE
–CUMULATIVE
–REDEEMABLE
–PARTICIPATING
SHARE CAPITAL
•
•
•
•
•
AUTHORISED CAPITAL
ISSUED CAPITAL
SUBSCRIBED CAPITAL
CALLED CAPITAL
PAID UP CAPITAL
ISSUE OF SHARE AT PAR
-BANK
credited
-SHARE CAPITAL
Debited
Debited
-
Over subscription
-share application
-share capital
-bank (refund)
-share allotment
Debited
-
Credited
Credited
Credited
- SHARE APPLICATION
-SHARE APPLICATION
Credited
SHARE ALLOTMENT/SHARE CALL
Share allotment a/c
Share capital a/c
Debited
-
Credited
Bank a/c
Debited
-
Credited
Debited
-
Credited
Debited
-
Credited
Debited
-
Credited
-
Credited
Share allotment a/c
Share call a/c
Share capital a/c
Bank a/c
Share call a/c
Calls in arrears a/c
Share allotment a/c
Share call a/c
Issue of shares at premium
Share application/
allotment a/c
Share capital A/c
Share premium A/c
Debited
-
-
Credited
Credited
Issue of shares at discount
Share allotment A/c Debited
Discount on issue of Debited
shares A/c
Share capital A/c
-
Credited
Forfeiture of shares
Share capital A/c
Call in arrears A/c
Forfeited shares A/c
Debited
-
Credited
Credited
Re-issue of shares
Bank A/c
Forfeited shares A/c
Share capital A/c
Capital reserve A/c
Debited
Debited
-
Credited
Credited
Issue of Bonus shares
Cap. Red. Reserve A/c
Share premium A/c
Capital reserve A/c
Gen Reserve A/c
Profit & Loss A/c
Bonus to shareholders
A/c
Bonus to shareholders
A/c
Equity share capital A/c
Debited
Debited
Debited
Debited
Debited
-
credited
Debited
credited
Schedule VI to Companies Act
Part I- form of Balance sheet
1.
2.
3.
4.
5.
Share capital
Reserves & surplus
Secured Loans
Unsecured Loans
Current Liabilities &
Provisions
-current Liabilities
-Provisions
-other provisions
1. Fixed Assets
2. Investments
3. Current Assets,
Loans & Advances
4.
a) Current assets
b) Loans & advances
Miscellaneous
Expenditure ( to the
extent not w/o)
5.
Profit & Loss Account
Contingent Liabilities
Do not form part of the Balance sheet.
Shown by way of foot note
• -Claims against the company not acknowledged as
debts.
• -Uncalled liability on partly paid-up shares.
-Arrears of cumulative dividends on Pref. Capital
-Estimated amount of contracts remaining to be
executed on capital account and not provided for
-Other money for which the company is contingently
liable
Profit & Loss Account
Profit & Loss Account Profit
&
Loss
Appropriation A/c
-Shows current years
expenses & Income
-shows appropriation of
profit by way of dividend
and transfer to various
reserves
-Shows excess or short
provision in respect of
income tax for earlier years
FINAL
ACCOUNTS
COMPANIES
OF
BANKING
• Definition
• Requirements –Accounts & audit
– Third Schedule annexed to Banking Regulation
Act
– Form A- Balance sheet
– Form B- Profit & Loss Account
– Audit
– Submission of accounts- RBI- within 3 months
– Publication of accounts- within 6 months
Balance sheet-Form A
Capital & Liabilities
Assets
1.Capital
6.Cash & Bank Balance
with RBI
2. Reserves & surplus
3.Deposits
7.Balances with Banks &
Money at call and SN
8.Investments
4.Borrowings
9Advances
5Other Liabilities &
Provisions
10.Fixed Assets
11.Other Assets
Contingent liabilities
Schedule-12
• Claims against bank not acknowledged as debts
• Liability for partly paid shares
• Liability on account of outstanding forward
exchange contracts
• Acceptances ,endorsement & other obligations
• Other items for which bank is contingently liable.
PROFIT & LOSS ACCOUNTFORM B
Income
Interest Earned
Other Income
Expenditure
Interest Expended
Operating Expenses
Provision for contingencies
Profit /Loss
Appropriations
Transfer to Reserves
Proposed dividend
Balance carried to
Balance sheet
Schedule.13
Schedule.14
Schedule.15
Schedule.16
NOTES TO ACCOUNTS
Significant
Accounting
Policies
Schedule.17
Notes forming Schedule.18
part of Accounts
ASSET CLASSIFICATION ETC
• Asset Classification
– Performing and
– non performing ( remain out of order)
• Income Recognition
– Performing-accrual basis
– Non performing-cash basis
• Asset Classification
• Std-0.25%/ 0.40%
• Sub-Std.<18 months-10%
• Doubtful>18 months-usl-100%-secured.3yrs-50%,>1&<330%-upto 1year-20%
• Loss assets-100%
EXAMPLE
Q.Choose the item which is not part of “ other Income” in
case of banking companies.
a. Commission , Exchange and brokerage
b. Income on investments by way of interest and
dividends
c. Income earned by way of dividends etc. from
subsidiaries, joint ventures abroad/ in India
d. Profit on sale of investments less loss on sale of
investments
Q.2: Relate the following items with the various schedules
of profit and Loss account (form B)Interest Earned,
Interest expended, operating expenses, other Income
a. 13,14,15,16
b. 13,15,16,14
c. 13,15,14,16
d. 13,14,16,15
EXAMPLE
Q. Which of the following are true----a. The amount of bad debts and provision for bad debts is charged
under the heading “Provisions and contingencies” in the Profit and
Loss Account . In the Balance sheet , the advances are shown after
deducting both bad debts and provisions for bad debts
b. If adjustment has to be made after preparation of trial balance in
respect of rebate on bills discounted in respect of unearned discount
relating to the next period, the amount of such rebate will be
deducted from the total discount in the profit and Loss account and
will also appear as a liability in the balance sheet.
Q choose the sentence which is not relating to fixed asset of a banking
company----a. Premises wholly owned by the banking company for the purpose of
banking business
b. Other fixed Assets ( including furniture and Fixtures) , Motor Vehicles
c. As regards fixed assets, where sums have been written off on
revaluation of assets , every balance sheet after the first balance
sheet subsequent to the revaluation should show the revised figures
for a period of five years with the date and amount of revision made.
d. Non banking assets acquired in satisfaction of claims would include
immovable properties /tangible assets acquired in satisfaction of
EXAMPLE
Q:
As per section 31 and 32 of the Banking Regulation Act,1949,
three copies of Balance sheet and Profit & Loss Account
prepared u/s 29 and auditors Report u/s 30 must be submitted to
RBI within-----
a. One month from the end of the period to which
they refer
b. Six month from the end of the period to which they
refer
c. Three month from the end of the period to which
they refer
d. Nine month from the end of the period to which
they refer
EXAMPLES
•
If Rs.10 share has been issued at a premium
of Rs.5, on which entire amount has been
called up, has been forfeited for non payment
of Rs. 4, the ‘Share Capital Account’ will be
debited by----i. Rs.15
ii. Rs.10*
iii. Rs.4
iv. Rs.6
Examples
Choose the item which will appear last in
respect of share capital in company
balance sheet
i.
ii.
iii.
iv.
Paid up capital
Calls in advance*
Subscribed capital
Issued capital
Examples
•
A B and C are sharing profits in the ratio
of 2:2:1. C retired from the business and
his share was given equally to A and B.
The new profit sharing ratio will be ----i.
ii.
iii.
iv.
1:1
3:2
2:3
None of the above
EXAMPLES
•
XL,YK and ZP are partners. The following differences as listed at
(i) to (iv) have arisen due to misunderstanding. The answer to
each point is given at (a) to (d). One of the solutions is incorrect.
Identify the wrong solution. (i) XL used Rs.21,000 belonging to
the firm and made a profit of Rs.4,000. YK wants the amount to
be given to the firm (ii) ZP used Rs.5,000 belonging to the firm
and suffered a loss of Rs. 3000. He wants the firm to bear the
loss (iii) XL & YK wishes to appoint TS as new partner. ZP does
not agree (iv) XL has given loan of Rs. 100,000 to the firm, he
wants interest at 6% ( there is no partnership deed)
i. YK is right .XL must pay Rs.25,000 to the firm
ii. ZP is right . Firm should bear profit as well as
losses.
iii. ZP is right. No new partner can be admitted
without the consent of all.
iv. XL is right. He is entitled for interest at 6% in the
absence of partnership agreement.
EXAMPLES
Choose the wrong pair from the following. The
information given in the pair is pertaining to
banking companies
i.
ii.
iii.
Notes to the balance sheet - Difference between
book value and market value of government securities
Letter of credit - Advances*
Demand loan - tenure less than a year
iv.
Fixed Assets - Depreciation to date
Examples
•
The provisional requirement for standard
asset is----i. 0.40%(revised) of total outstanding
ii. 10%(revised) of total outstanding
iii. 40%(revised) of total outstanding
iv. 100%(revised) of total outstanding
Examples
•
INVESTMENTS, ADVANCES, FIXED
ASSETS AND OTHER ASSETS ARE
PART OF SCHEDULE NOS.-RESPECTIVELY
i.
ii.
iii.
iv.
6,7,8,9
7,8,9,10
8,9,10,11
9,10,11,12
Examples
•
The scheduled banks are required by
RBI to transfer at least ------ of their
disclosed profit.
i.
ii.
iii.
iv.
25%
20%
10%
None of the above
Examples
One of the accounts is wrongly debited to
“Profit and Loss Appropriation A/c” of a
company. Name the wrong account
debited
i.
ii.
iii.
iv.
Capital redemption reserve
Interim dividend
Proposed dividend
Provision for tax
Examples
•
SD Ltd. issued shares of Rs.10 each at 10 %
premium, payable on application Rs.2, on
allotment Rs.3 (including premium), on first
call Rs.2 and on final call Rs.4. One of the
shareholders, applied for 100 shares but fail to
pay allotment and first call money. At this
stage, the said shares were forfeited. Select
the account which was wrongly credited.
i.
ii.
iii.
iv.
Credit Forfeited shares Account by Rs.200
Credit Share allotment Account by Rs.200
Credit share premium Account by Rs.100
Credit Share first call Account by Rs.200
.
THANK YOU
WISH YOU BEST OF LUCK