ACCOUNTING & FINANCE FOR BANKERS-JAIIB-MODULE D

1. ACCOUNTING & FINANCE FOR BANKERS-JAIIB-MODULE D PRESENTATION BY S.D.BARGIR Joint Director-IIBF

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) • RETIREMENT/DEATH • 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)

9. … • ADMISSION • revaluation of assets/ liabilities, goodwill, capital adjustments, balance of reserves, past losses • 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

10. Joint life policy

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

12. 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

13. Balance sheet-Form A

14. 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

15. 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.

16. PROFIT & LOSS ACCOUNT-FORM B

17. NOTES TO ACCOUNTS

18. 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

19. 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

20. 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

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-0.40% (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%

22. SLR & NON SLR DEPOSITS

23. 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

24. Types of companies

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

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

27. ISSUE OF SHARE AT PAR

28. SHARE ALLOTMENT/SHARE CALL

29. Issue of shares at premium

30. Issue of shares at discount

31. Forfeiture of shares

32. Re-issue of shares

33. Issue of Bonus shares

34. Balance sheet equation

35. Balance Sheet Equation

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

37. 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

38. B/s EquationExamples (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

39. 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

40. Computerized accounting • Computer language- Cobol, FoxPro, Unix ….. • Analog computers- scientific/ mechanical field • Digital computers- computerized accounting • Data- fact • Record- group of data • File- data record

41. Contact details • Website: www.iibf.org.in • Email: sudaaba@iibf.org.in • Phone. 022-22183898 • 022-22187003/4/5