JAIIB-Module D Accounting & Finance for Bankers Prof.S.D.Bargir 13.4.2006

1. 1 JAIIB-Module D Accounting & Finance for Bankers Prof.S.D.Bargir 13.4.2006

2. 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

3. Types of companies

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

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

6. ISSUE OF SHARE AT PAR

7. SHARE ALLOTMENT/SHARE CALL

8. Issue of shares at premium

9. Issue of shares at discount

10. Forfeiture of shares

11. Re-issue of shares

12. Issue of Bonus shares

13. Share capital Reserves & surplus Secured Loans Unsecured Loans Current Liabilities & Provisions -current Liabilities -Provisions -other provisions Fixed Assets Investments Current Assets, Loans & Advances Current assets Loans & advances Miscellaneous Expenditure ( to the extent not w/o) Profit & Loss Account Schedule VI to Companies ActPart I- form of Balance sheet

14. 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

15. Profit & Loss Account

16. 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

17. Balance sheet-Form A

18. 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.

19. PROFIT & LOSS ACCOUNT-FORM B

20. NOTES TO ACCOUNTS

21. 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% • Sub-Std.<18 months-10% • Doubtful>18 months-usl-100%-secured.3yrs-50%,>1&<3-30%-upto 1year-20% • Loss assets-100%

22. Q.Choose the item which is not part of “ other Income” in case of banking companies. • Commission , Exchange and brokerage • Income on investments by way of interest and dividends • Income earned by way of dividends etc. from subsidiaries, joint ventures abroad/ in India • 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 • 13,14,15,16 • 13,15,16,14 • 13,15,14,16 • 13,14,16,15

23. Q. Which of the following are true----- • 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 • 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----- • Premises wholly owned by the banking company for the purpose of banking business • Other fixed Assets ( including furniture and Fixtures) , Motor Vehicles • 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. • Non banking assets acquired in satisfaction of claims would include immovable properties /tangible assets acquired in satisfaction of claims.

24. 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----- • One month from the end of the period to which they refer • Six month from the end of the period to which they refer • Three month from the end of the period to which they refer • Nine month from the end of the period to which they refer

25. Q. When Depreciation A/c is debited and the Provision for Depreciation A/c is credited, a. Depreciation is shown on the debit side of P & L A/c b. Asset appears at its original value in the details column of the Balance Sheet c. Accumulated Provision for depreciation is deducted from the value of the asset. d. The net value of the Asset is shown in the amount column of the balance sheet. e. All of the above f. Asset is shown at its original cost in the Balance Sheet Q.: A company purchased a second hand motor car for Rs. 80,000 and spent Rs. 35,000 on its overhauling. Depreciation is written off @ 10% on the original cost. After two years the car was found unsuitable and sold for Rs. 65,000. What is the amount of loss on sale of car. • Rs. 15,000 • Rs. 27,000 • Profit Rs. 1000 • Rs. 50,000

26. The amount written off as depreciation is invested in outside securities to yield interest, and the interest earned thereon is reinvested. For example if the cost of machine is Rs. 1,00,000. It is expected to have an economic life of 5 years and the investment yields 6% p.a. (A reference to the Sinking Fund Table the factor applicable for 5 years at 6% rate is 0.177396. The annual depreciation would be Rs. 1,00,000 x 0.177396 or Rs. 17,739. 60) This amount will become Rs. 1,00,000 in 5 years @ 6% p.a. as under: • First year Depreciation Rs. 17,739.60 • Interest at the end of First year on 17,739.60 Rs. 1,064.37 • Total investment at the beginning of 2nd year Rs.18,803.97 • Second year depreciation Rs. 17,739.60 • Interest on 18,803.97 Rs. 1,128.24 • Total investment at the end of 2nd year Rs. 37,671.81 • Third year depreciation Rs. 17739.60 • Interest on 37,671.81 Rs. 2,260.30 • Total investment at the end of 3rd year Rs. 57,671.71 • Fourth year depreciation Rs. 17,739.60 • Interest on 57,671.71 Rs. 3,460.31 • Total investment at the end of 4th year Rs. 78,871.62 • Fifth year depreciation Rs. 17,739.60 • Interest on 78,871.62 Rs. 4,732.30 • Total investment at the end of 5th year Rs. 101343.52

27. The annual depreciation is transferred to Sinking Fund A/c every year: Debit: Depreciation A/c Credit: Sinking Fund A/c (To the extent of the amount of depreciation is written off, amount is invested in outside securities at the stipulated rate of interest and kept under Sinking Fund Investment A/c.) • Debit: Sinking Fund Investment A/c Credit: Bank A/c • Interest realized from the investments are again utilized and is invested in the Securities and kept under Sinking Fund Investment A/c. • Debit: Bank A/c Credit: Interest on Sinking Fund Investment A/c • Debit: Interest on Sinking Fund Investment A/c Credit: Sinking Fund A/c • Debit: Sinking Fund Investment A/c Credit: Bank A/c • In the final year-no fresh investment is made. Only the following entries are made: • Debit: Depreciation A/c Credit: Sinking Fund A/c • Debit: Bank A/c Credit: Interest on Sinking Fund Investment A/c • Debit: Interest on Sinking Fund Investment A/c Credit: Sinking Fund A/c • For realization of investments • Debit: Bank A/c Credit: Sinking Fund Investment A/c • If the amount realized is the same as book value of the Sinking Fund Investment, this account is automatically closed. • If the amount realized is more or less, there is a profit or loss on sale of investments, which is transferred to Sinking Fund A/c. • 9. The Asset account is closed by: • Debit: Sinking Fund A/c Credit: Asset A/c • 10. The Sinking fund account is closed by transferring any balance in it to the • P & L A/c.

28. 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

29. Goodwill & methods of valuation

30. 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

31. 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

32. 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

33. BALANCE SHEET EQUATION • ASSETS = CAPITAL + LIABILITIES • LIABILITIES = ASSETS - CAPITAL • CAPITAL = ASSETS - LIABLITIES

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

35. 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 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

36. Q.Choose the incorrect statement----- • 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----- • 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.

37. Q: Analog computers are mostly used for---- • Running accounting software • Running simulation of guided missile system • Using in scientific and mechanical fields* • All of these Q:Data means---- • Facts • Observations • Assumptions • Occurrences • All of these • None of the above Q: Compilation of related data records maintained in some prearranged order is known as----- • Data base • Data file • Data mart • Data group • All of these • None of these