Accounting & Finance for Bankers JAIIB-MODULE-D PRESENTATION BY S.D.BARGIR Joint Director, IIBF 22-10-2007

1. . Accounting & Finance for BankersJAIIB-MODULE-D PRESENTATION BY S.D.BARGIR Joint Director, IIBF 22-10-2007

2. Topics • Partnership accounts • Final accounts of banking companies • Company accounts • Balance sheet equation • Accounting in a Computerized environment

3. PARTNERSHIP ACCOUNTS • Introduction • Definition • Partnership deed

4. In the absence of partnership deed/if deed is silent • Profit sharing ratio –Equal • No interest on capital • No interest on drawings • interest@6% on loan given by partner • No salary /no commission/ no remuneration • Capital accounts under fluctuating capital method

5. Methods of capital accounts • Fixed • Capital account-transactions relating to capital • Current account • Other transactions such as Interest, profit, goodwill, past profits/losses & adjustments • Fluctuating • One account- all transactions

6. GOODWILL • It’s 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

7. Methods of goodwill

8. GOODWILL IMPORTANT ENTRIES • ADMISSION • When goodwill is raised and written off • Debit goodwill and credit old partners capital a/c (old ratio) • Debit All partners capital a/c & • credit goodwill (new ratio)

9. GOODWILL IMPORTANT ENTRIES • RETIREMENT • When goodwill is raised and written off • Debit goodwill and credit old partners capital a/c (old ratio) • Debit Continuing partners capital a/c & credit goodwill (new ratio)

10. ADMISSION • revaluation of assets/ liabilities, • goodwill, • capital adjustments, • balance of reserves, • past losses (if any)

11. RETIREMENT • As per Act of 1932, retirement by consent, partnership deed provision, at will by giving proper notice • Revaluation of assets/ liabilities, goodwill, capital adjustments, balance of reserves, past losses

12. Joint life policy

13. Types of partners • Active • Sleeping • Quasi • nominal

14. FINAL ACCOUNTS OF BANKING COMPANIES • Definition • Requirements –Accounts & audit • Third Schedule annexed to BRA • Form A- Balance sheet • Form B- Profit & Loss Account • Audit • Submission of accounts- RBI- within 3 months • Publication of accounts- within 6 months • Auditor-prior approval of RBI for appt/removal

15. Balance sheet-Form A

16. Demand deposits • Credit balances in OD and CC • Deposits payable at call • Overdue deposits • In-operative current accounts • Matured time deposits • Matured cash certificates • Matured certificate of deposits

17. 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.

18. PROFIT & LOSS ACCOUNT-FORM B

19. NOTES TO ACCOUNTS

20. Other Income • Profit on exchange transactions • Profit on sale of investments • Profit on revaluation of investments • Profit on sale of fixed assets • Letting of locker (income from locker charges ) • Misc. income -Godown rent

21. Ponder over these points • Govt. securities shown at book value and diff. between MV and BV is given in the notes • If some fixed assets are w/o on revaluation of assets/reduction of capital every B/S after wards should. show the revised figure for next 5 yrs. With the date & amt. revised • Other fixed assets includes vehicles, furniture and fixtures. Lockers and safe deposit vaults are included in furniture

22. Ponder over these points • 20% to reserve fund before declaring dividend • Gold is treated as investment • Silver is treated as other assets • Income from performing assets is recognized on accrual basis while in r/o non-performing assets it is on cash basis • In r/o NPA, if income is already recognized, then make provision

23. 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-0.40% (revised from 0.25%) • Sub-Std.<18 months-10% • Doubtful>18 months-usl-100%-secured.3yrs-50%,>1&<3-30%-upto 1year-20% • Loss assets-100%

24. SLR & NON SLR DEPOSITS

25. 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

26. Types of companies

27. SHARE CAPITAL • EQUITY • PREFERENCE • CUMULATIVE • REDEEMABLE • PARTICIPATING

28. SHARE CAPITAL • AUTHORISED CAPITAL • ISSUED CAPITAL • SUBSCRIBED CAPITAL • CALLED CAPITAL • PAID UP CAPITAL

29. ISSUE OF SHARE AT PAR

30. SHARE ALLOTMENT/SHARE CALL

31. Issue of shares at premium

32. Issue of shares at discount

33. Forfeiture of shares

34. Re-issue of shares

35. Issue of Bonus shares

36. Balance sheet equation

37. Balance Sheet Equation

38. BALANCE SHEET EQUATION Assets = Liabilities Assets = Capital + Liabilities Assets =Net worth + Liabilities Net worth = Capital + Reserves& Surplus Net worth = Assets Less Liabilities

39. 1. The Assets of a business are Rs.500000 and its capital is Rs.115000. Its liabilities on that date would be------ • Rs.615000 • Rs.385000 • Rs.500000 • Rs. 115000

40. 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----- • Rs.750000 • Rs.900000 • Rs.600000 • Rs.1050000

41. 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 - Personal Account account* • Profit and Loss Account (Dr. balance) – Application of funds • Net worth less reserves & surplus - Balance in P & L Account* • Balance sheet - Financial position

42. Computerized accounting • Computer language: cobol, foxpro,unix …etc • Analog computers : scientific and mech. Field • Digital computers: computerized accounting • Data : fact • Record : group of data • Data file: data records

43. EXAMPLES • Select from the following , a statement which speaks about liabilities of an entity. • The liabilities consist of claims of the owners • The liabilities consist of claims of the owners and outsiders • The liabilities consist of claims of the outsiders • None of the above

44. EXAMPLES • If the net worth of the business is Rs.500, fixed assets are Rs. 500, current assets Rs.300, investments Rs.300, current liabilities Rs. Nil, what is the amount of claim to outsiders? • Rs. Nil • Rs. 1100 • Rs.500 • Rs.600

45. EXAMPLES • Select from the following a sentence which is wrong • If assets increase and liabilities do not , the capital will increase • If assets increase and liabilities also increase by same sum , the capital will remain same • A reduction in the amount of assets will amount to equivalent reduction in the net worth • An increase in the amount of liabilities with no corresponding increase in liabilities will increase the amount of capital

46. EXAMPLES • The firm sells goods on credit for Rs.50000, the cost of the goods sold is Rs.30000.The effect of the transaction is that, the capital of the firm----- • increases by Rs.50000 • reduces by Rs.40000 • increases by Rs. 20000 • reduces by Rs. 20000

47. EXAMPLES • Mr.Ghatge commenced his business on 1st April, 2006 with Capital of Rs.1,00,000. He did good business during the year and earned handsome profit. At the end of 31st March, 2007, his financial position was: Fixed Assets Rs.1, 20,000 and bank balance of Rs.33000 and Creditors Rs. 17000. What was his net profit for the year 05-06? • Rs. 36000 • Rs.70000 • Rs.53000 • None of the above

48. EXAMPLES • One of the pairs given below is wrong. Select the wrong pair. • Outstanding expenses - Nominal account • Profit and Loss Account (Dr. balance) – Application of funds • Net worth less reserves & surplus - Capital • Balance sheet - Financial position

49. EXAMPLES • From the following ,find a sentence which is false in respect of partnership • If the partnership is following the “Fixed Capital Account Method” salary payable to a partner is credited to the partner’s current account • Drawings made by partners are never entered in the Profit and Loss Appropriation Account. • In the “Fluctuating Capital Account Method” the balance in the capital account always remains the same • The capital account of a partner is required to be opened in both the Fixed Capital Account Method and Fluctuating Capital Account Method

50. EXAMPLES • From the account given below, select the account which is wrongly included in Profit & Loss Appropriation Account at the debit side • Drawings Account • Partners Salary Account • Interest on Loan Account • Commission to Partners Account