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A Study on Branch Accounting Procedure &

Financial Performance of ―The Peerless General

Finance and Investment Company Limited





As a part of MBA program, a student has to peruse a project duly approved by the Director of
the institute. I had privileged of undertaking the project on the study and critical analysis of
Accounting Procedure and analysis of financial statement of “The Peerless General Finance
and Investment Company Limited” Asansol – 713301.

It is a matter of immense pleasure for me to prepare the summer project report title “A Study
on Branch Accounting Procedure & Financial Performance of The Peerless General Finance
and Investment Company Limited, Asansol”.

Branch accounting is very important for financial organizations having many branches. The
most of the financial organizations like banks, insurance companies, companies dealing in
mutual funds and etc are having many branches spread all over the country and even out side
the country. So branch accounting is very important sector for them and it is key factor of
success for competitive organizations.

The purpose of the study is to examine the present accounting procedure for the branch and
some portion of the financial statement by the help of some financial tools.

This project covers most of the area regarding the accounting procedure maintained in the
said organization and also covers some aspect of financial statement analysis. The data’s are
collected from the Asansol branch of Peerless regarding this project.

In this project the details regarding the accounting procedure for the customers and for the
branch are separately discussed in details so that one can get a clear idea about the function of
a branch.

This project also tries to focus on the financial aspect of the Peerless and for that ratio
analysis technique is used.

Key-words: Accounting Procedure for Certificate Holder, Branch Accounting,

Ratio Analysis, Record Seeping System, Audit and Inspection.
Chapter Context Page
No. No.
1 Introduction 1
 Scope of Study 2
 Objective of Study 3
2 Industry Profile 4
 Indian Financial Sector 4
 Investment Industry 8
3 Organisationnel Profile 12
 Peerless Heritage 12
 Peerless Group of Companies 13
 General Profile 15
 Market Profile 17
 Financial Products 19
4 Methodology of Study 21
5 Conceptual Framework 22
 Overview of Branch Accounting 22
 Need for Branch Accounting 23
 Overview of Accounting Procedure 24
 Financial Statements 27
 Ratio Analysis 30
6 Accounting Procedure for Certificate Holder 34
 New Business 35
 Renewal Collection 39
 Maturity Payment 42
 Per-Maturity Payment 43
 Death Claim 44
 Payment of Loan 45
 Repayment of Loan and Interest 46
 Ex-Gratia 47
 New Business Reinvestment 48
 Some Special cases 49
7 Branch Accounting 50
 End of Day (EOD) Procedures 50
 End of Month (EOM) procedures 51
 Generation of Trial Balance 51
 Preparation of BRS 52
 Payment to TDS 53
8 Furniture, Fixtures and Equipment 55
9 Record Seeping System 56
10 Audit and Inspection 58
11 Analysis and Interpretation 63

12 Recommendations and Conclusions 74

 Recommendations 74
 Conclusions 76
 Limitations 77
13 Bibliography 78

Today India is a developing country and we can say that Indian financial sector is
one of the key elements behind this development. So this study is based on the one
of such financial organization i.e. ―The Peerless General Finance and Investment
Company Limited, Asansol‖.

The Peerless Insurance Co. Ltd. launched in 1932, so we can say that this company
is performing from a very long time and now days it is having a vast infra structural
strength of several lakh field workers and nearly 5000 employees attached to over
150 country wide offices. So this project is about the accounting procedure followed
in the different branches of this company and for that relevant data‘s are collected
from the Asansol branch of Peerless.

This project report is based on the detail analysis of the present accounting
procedure followed in a branch and also tries to analyze the financial performance of
this company. This project also shows the importance of the branch accounting in
today‘s organizations. In this report present accounting system and analysis of
financial statements are discussed in details.

In the competitive scenario it is very important to understand what the position of the
competitive organization is. How they make the various decisions and what are their
source of information and what accounting process they are following etc. As a
researcher, during the training period I had correlated my theoretical aspect into
practical one.

I also try to analyze the present accounting system followed in the Asansol branch of
the Peerless, my project consists of the activities related to that branch only. So
there is a limited scope to explore but I try to cover maximum aspect as possible.

For this project all the data‘s are collected from the branch only and according to
those data‘s the study can be divided in to major areas one is related to the
customer known as certificate holder and other is related to the branch.

The data‘s regarding the certificate holder consists of the dealings between the
company and the customer where as the data‘s regarding the branch is related with
the dealings between the branch and head office. So in this project all this areas are
covered as much as possible.

The Peerless General Finance & Investment Co Ltd is the market leader in the area
of savings & investments and has emerged as India's largest Registered Residuary
Non-banking Company (RNBC), with core competence of mobilizing savings from
the grass root level. Out in this project I tried to highlight the accounting procedure
maintained in a branch.
Thus the objectives of this project are:-

1. To analyze the accounting procedure maintained in a branch of Peerless

General Finance & Investment Co Ltd.

2. To understand all the aspects of the accounting procedure of this organization

through analysis of the process followed by them.

3. Other than this project also focuses on the problem faced in maintaining the
present accounting system and find out the scope of modification if possible.

4. To analyze the financial statements of Peerless General Finance &

Investment Company.

5. To understand all the aspects of the financial performance of this esteemed

organization through analysis like Ratio Analysis Methods.


a) The Introduction:
The Financial sector in India comprises of varied elements – financial institutions,
financial markets, financial instruments and financial services. Broadly the Indian
financial system can be categorized into two segments – the organized sector and
the informal credit market (unorganized). The financial institutions in India are
responsible for all the financial intermediation in the organized sector.

The Reserve Bank of India (RBI) acts as the main credit regulator and is the apex
institution in the Indian financial system. The other important financial institutions are
the commercial banks (both public and private sector), cooperative banks, regional
rural banks and development banks. Non banking financial companies (NBFCs)
comprise of finance and leasing companies and institutions like LIC, GIC, UTI,
Mutual funds, Provident Funds, Post Office Banks etc. the dominant segment of the
Indian financial sector is the banking industry as they manage more than 80% of the
funds in the economy.

Broadly one can say that Indian finance is just the management of funds. With the
general areas of financial services in India being business finance, personal finance,
and public finance, finance in India is really comprehensive. Concepts of time,
money and risk are all inter-related in the financial services sector in India, thus one
should have an idea about how money should be spent and budgeted.

The growth of financial sector in India at present is nearly 8.5% per year. The rise in
the growth rate suggests the growth of the economy. The financial policies and the
monetary policies are able to sustain a stable growth rate. The reforms pertaining to
the monetary policies and the macro economic policies over the last few years have
influenced the Indian economy to the core. The major step towards opening up of the
financial market further was the nullification of the regulations restricting the growth
of the financial sector in India. To maintain such a growth for a long term the inflation
has to come down further.

The financial sector in India had an overall growth of 15%, which has exhibited
stability over the last few years although several other markets across the Asian
region were going through turmoil. The development of the system pertaining to the
financial sector was the key to the growth of the same.

With the opening of the financial market variety of products and services were
introduced to suit the need of the customer. The Reserve Bank of India (RBI) played
a dynamic role in the growth of the financial sector of India.

b) The growth of financial sector in India was due to the development in the
following sectors:
1. Growth of the banking sector in India
The banking system in India is the most extensive. The total asset value of the entire
banking sector in India is nearly US$ 270 billion. The total deposits are nearly US$
220 billion. Banking sector in India has been transformed completely. Presently the
latest inclusions such as Internet banking and Core banking have made banking
operations more user friendly and easy.

2. Growth of the Capital Market in India

 The ratio of the transaction was increased with the share ratio and deposit
 The removal of the pliable but ill-used forward trading mechanism.
 The introduction of Infotech systems in the National Stock Exchange (NSE) in
order to cater to the various investors in different locations.
 Privatization of stock exchanges.

3. Growth in the Insurance sector in India

 With the opening of the market, foreign and private Indian players are keen to
convert untapped market potential into opportunities by providing tailor-made
 The insurance market is filled up with new players which has led to the
introduction of several innovative insurance based products, value add-ons,
and services. Many foreign companies have also entered the arena such as
Tokio Marine, Aviva, Allianz, Lombard General, AMP, New York Life, Standard
Life, AIG, and Sun Life.
 The competition among the companies has led to aggressive marketing, and
distribution techniques.
 The active part of the Insurance Regulatory and Development Authority (IRDA)
as a regulatory body has provided to the development of the sector.

4. Growth of the Venture Capital market in India

 The venture capital sector in India is one of the most active in the financial
sector inspite of the hindrances by the external set up.
 Presently in India there are around 34 national and 2 international SEBI
registered venture capital funds.

c) Present scenario:
The Indian financial services industry is in a process of rapid transformation.
Reforms are continuing as part of the overall structural reforms aimed at improving
the productivity and efficiency of the economy. The role of an integrated financial
infrastructure is to stimulate and sustain economic growth. Overall the US$28 billion
Indian financial sector has grown at around 15 percent and has displayed stability for
the last several years, even when other markets in the Asian region were facing a
crisis, according to Ministry of External Affairs, Government of India. This stability
was ensured through the resilience that has been built into the system over time.
The financial sector has kept pace with the growing needs of corporate and other
borrowers. Banks, capital market participants and insurers have developed a wide
range of products and services to suit varied customer requirements. The Reserve
Bank of India (RBI) has successfully introduced a regime where interest rates are
more in line with market forces.

Financial institutions have combated the reduction in interest rates and pressure on
their margins by constantly innovating and targeting attractive consumer segments.
Banks and trade financiers have also played an important role in promoting foreign
trade of the country.

Financial services organizations are striving to achieve increasingly ambitious profit

and growth targets against a background of heightened risk, regulation and market

Customer needs and expectations are evolving in the face of increasing personal
wealth, more private funding of pensions and health care and the desire for ever
more accessible and personalized financial products and services. In turn, intense
competition has squeezed industry margins and forced organizations to cut costs
while still seeking to enhance the quality of client choice and service. The battle for
talent is also heating up as companies seek to enhance innovation, customer loyalty
and investment returns.

The corollary of this market evolution is increasing risk as products become more
complex, organizations more diffuse and the business environment ever more
uncertain. Regulation is also tightening in the wake of public and government
pressure for improved governance, transparency and accountability.

In this environment, the winners will be companies that can turn the challenges into
opportunities to build stronger and more enduring customer relationships; sharpen
process efficiency; unlock talent and creativity; use improved risk management
processes to deliver more sustainable returns; and use new regulatory demands as
a catalyst for strengthening the business and enhancing market confidence.
What is Investment?
Investment is referred to as the concept of deferred consumption, which might
comprise of purchasing an asset, rendering a loan, keeping the saved funds in a
bank account such that it might generate lucrative returns in the future. The options
of investments are huge; all of them having different risk-reward trade off. This
concludes that the investment industry is really broad and that is why understanding
the core concepts of investments and accordingly analyzing them is essential. After
thorough understanding of the investment industry, can an investor create and
manage his own investment portfolio such that the returns are maximized with the
least risk exposure.

Types of Investments in the investment industry

As stated earlier, the investment industry is huge; therefore the types of investments
are also varied. Different types of investments are: Cash investments: Cash
investments comprise of savings bank accounts, certificates of deposit (CDs) and
treasury bills (TBs). All these types of investments render a low interest rate and
prove to be quite risky during times of inflation.

Debt securities: This type of investment gives returns in the form of fixed periodic
payments and the fixed capital appreciate at maturity. This is safe bait for the
investors in the investment industry and has always proved to be the risk free
investment tool. Though, it is generally low in risks, the returns are also lower than
the other peer securities.

Stocks: Investors can also buy stocks (equities) from the secondary markets and be
a part of any business corporates that are listed in the bourses. By this way, one can
become the part of the profits that the company generates. But one should
remember that stocks are generally more volatile and carries more risk than bonds.
Mutual funds: They are usually a collection of stocks and bonds that a fund manager
selects for an investor such that the returns are maximum. The investor does not
have to track the investment, be it a bond, stock- or index-based mutual funds.
Derivatives: Derivatives are financial contracts, whose value is derived from the
value of the underlying assets like equities, commodities and bonds. They can take
the form of futures, options and swaps. Investors choose derivatives as they are
used to minimize the risk of loss that result from variations in the underlying asset

Commodities: The items that are traded on the commodities market are agricultural
and industrial commodities and they need to be standardized. Commodities trading
have always been giving high returns and thus they are the riskiest of all investment
options. One, who trades in commodities, requires specialized knowledge and
analytical capabilities.

Real estate: Investing in real estate has to be a long term affair. Funds get hooked
into the real estate sector for a considerable time period.

b) Investment scenario in India:

Emerging strong even during the scariest phase of global financial meltdown, India
has become one of the favorite investment destinations for the foreign investors
across the globe. The investment scenario in India is getting better and better with
each passing day due to high confidence level of the investors. Today, India is
considered the 4th biggest economy in the world. Its impressive GDP rate, especially
in the field of purchasing power, has catapulted it to second position among all the
developing nations.

According to forecasts, Indian economy will grow to become 60% in size of the
economy of US. It will also witness macro-level stability in economic conditions.
Behind all this, investment can be said to be the key player.
To know investment environment in India in the best possible way, it will be wise to
consider the performance of 3 core sectors including education, infrastructure and
Private Education Investment
Since Independence, Indian education scene has improved for the better. As against
0.1 Million enrollment in 1947, India experienced over 11 Million enrollments in 2005-
06. At present, the educational sector has become more attractive with its growing
enrollment rates and the credit for this can be given to the whole fresh team of
education providers, consisting of distance learning course providers, private
institutes, foreign education providers and public institutions.

Though the Foreign Direct Investment (FDI) in educational sector, comprising higher
education, has been allowed by the Indian government, there are still many shortfalls
that need to be overcome. An increase in the enrollment figures is being constantly
witnessed. But, when it comes to cumulative states expenditure, the scene is quite
gloomy. For the period 2007-08, a fall of about 18% has been seen in the total
expenditure. Further, a clear gap in the per capita education expenditure among the
states can also be seen. Per capita fund inflow to educational sector in Uttar
Pradesh stood at Rs 483 whereas in Bihar it was Rs 487 in 2005-06. Himachal
Pradesh has Rs 1777 and Maharashtra and Kerala show Rs 1034 per capita fund
flow.Despite good financial performance of many of the states, their spending
scenario in educational sector has been found in poor condition.

Infrastructure Investment:
Investment scenario in India in infrastructure sector is attractive. Many sectors have
been allowed to disinvestments processes. Government is also thinking of
introducing a more integrated transport system with chalking out plans for the
investment. It cannot be denied that India has been successful in launching plenty of
infrastructure projects with encouraging private participation in the sector. The
booming IT and BPO sectors of India are the absolute testimony to its success story
in the infrastructure projects.

The overall outlook of the roads and highways in India has also changed for the
better. Many cities and towns have been inter-connected to each other. Both state
and central governments have dished out significant amount to the development of
Security Investment:
Security investment scenario in India is also bright. While several industries in India
are grappling with the impact of global meltdown and recent Mumbai attacks by
terrorists, the one industry which is predicted to register profits in near future is the
Indian security industry. The private security business in India is expected to become
Rs 50,000 crore (Rs 500 billion) worth industries.

Current Investment Scenario in India

Globalization and Foreign Direct Investment form an integral part of all the
developed as well as developing economies. In fact, the growth of the
underdeveloped economies is also dependant on these key factors. These
components equip any nation with new skills, new items and provide smooth access
to markets and technology. Today, every nation across the globe is looking for
foreign and overseas investors. Whether it's India or China, everyone wants foreign
investments. According to recent trends, India is only second to China in the league
of favorite investment destinations.

In the report issued by Department of Industrial Policy and Promotion, the fund inflow
to India reached US$ 27.3 billion in the period 2008-09, considered from the month
of April 2008 to the month of March 2009. Last quarter of 2008-09 alone witnessed
an inflow of approx. US$ 6.2 billion.

In the reports issued by Reserve Bank of India for outward investment from India, a
growth of 29.6% to US$17.4 billion has been seen in the period 2007-08. The figures
do not include individuals and banks. India is considered the 2nd highest foreign
employer in the United Kingdom after the United States.

From a humble beginning in 1932, Peerless has come a long way to establish itself
as a trusted household name through its continued dedication and sustained service
to its huge customer base.


The Peerless Insurance Co. Ltd. launched in 1932 by a 33-year

old high school teacher, Late Radhashyam Roy, and likeminded
idealist friends, at Dhaka's port of Narayanganj, now in
Directing the nationalistic fervor of the time to business
endeavor, to address the insurance needs of Indians, a sector
then monopolized by foreign companies.

Starting with paid up capital of Rs.300, it became a leading Provident Insurance

Company, before moving to Kolkata.
Following nationalization of life insurance in 1956, focus turned on small savings:
India's first Non-banking Finance Company.

THE PIONEER - LATE B.K ROY (Architect of modern Peerless)

Late B K Roy pioneered the concept of doorstep service for

mobilizing small savings from semi-urban and rural areas.
Free insurance benefit against accidental death, introduced in
the year 1972 with savings schemes.

Peerless introduced the concept of direct marketing by engaging agents through its
Swarojgar Yojana.
Agency system designed to promote self-employment, while ensuring operational
control of a massive infrastructure.
Peerless Group of Companies today stands front-ranking private sector service-
oriented organization, founded by Late Radhasyam Roy way back in 1932. Peerless
has eventually emerged as India's largest Non-Banking saving Company. The
flagship company under the stewardship of Late B. K. Roy is ―Peerless General
Finance & Investment Company Limited.‖

Under the Chairmanship of Mr. D.Basu and Mr. S.K.Roy as Managing Director it has
attained a high watermark of excellence with a vast infra structural strength of
several lakh field workers and nearly 5000 employees attached to over 150 country
wide offices. Peerless Group intends to enter into associations with other companies
(even from other nations), be it for operation in India or abroad. It is looking forward
to explore the possibilities for joint ventures to reach new horizons – as partners in
progress. Peerless has gone beyond Savings & Investments, expanding itself into
certain other key areas in the service sector, like Health-Care, Hospitality, Financial
Services, and Housing etc. These forays have given it an enviable Brand Image.

E N T E R P R I S E S:

Peerless Hospitex Hospital & Research Center Limited

Peerless‘s foray into health-care is synergic with its corporate culture: rendering
myriad forms of service to the society, and enriching the quality of life. Attuned to
this corporate philosophy, Peerless Hospitex Hospital & Research Center Limited
opened up a whole new vista of the latest and state-of-the-art, health-care facilities
in this part of the subcontinent.
Peerless Group of Hotels.

The Peerless Group of Hotels. A family of hotels and resorts spread across
Kolkata, Durgapur, Port Blair (Andaman) and Mukutmanipur.
There is a perfect blend of Bengali tradition and modernity at the Peerless Inn.
It leaves the discerning traveler spellbound. The Peerless Inn is friendly
and warm with an aesthetically pleasing ambience. It also owns some popular
bars and restaurants from Peerless Group of Hotel.

Bengal Peerless Housing Development Co. Ltd.

The Government of West Bengal in an effort to combat the problem of Housing

formed Joint Sector Companies with West Bengal Housing Board and Private
Entrepreneurs. Thus Bengal Peerless Housing Development Company Limited
was formed in 1994 with West Bengal Housing Board and The Peerless General
Finance and Investment Company Limited.

Kaizen leisure & holidays Pvt. Ltd.

Kaizen Holidays provides a whole gamut of travel related services. The Group has
experienced success in a number of ventures in diverse fields, the most
prominent being in the hospitality division. The travel wing is being managed by a
team of professionals with several years of experience in the field of Travel trade.
The operations and marketing activities of our group centralized at Kolkata and it's
networking with its offices and strong nationwide infra structure base enables us
to offer quality services at the most competitive prices.

Social Services

Social service is very much a part of the Company's activities. Peerless Polyclinics
in various parts of Kolkata & Milan Thirtha an Old Age Home at Baranagar are
some of the tangible instances of the company's continuing social commitment.
Peerless General Finance & Investment Company Limited

The company was incorporated in 1932 as "The Peerless Insurance Co Ltd", a

leading indigenous insurance company, the company is now known as "The
Peerless General Finance & Investment Co Ltd".
Today Peerless is the market leader in the area of savings & investments and has
emerged as India's largest Registered Residuary Non-banking Company (RNBC),
having a wide distribution network of 166 Service Points and 9 Regional Offices
through-out India, above 80% of its funds are invested in Govt. Approved Categories
of RBI, Lacks of agents across India with core competence of mobilizing savings
from the grass root level with a huge growth and progress. It's pan-Indian presence
with countrywide network and constant endeavor to offer need-based products and
superior customer services have enabled Peerless to build an excellent brand

The vision of PGFI is to emerge as the country‘s most trusted doorstep financial

services provider in the private sector with the lowest servicing to the customers. The

company wishes to accomplish its vision through their commitment to strategic

growth, quality service and creation of self employment opportunities for more



Mission of PGFI is:-

 To be a premier financial services company helping people build their security

by providing them with innovative financial products and quality investment
solutions through dedicated service.

 To create livelihood solutions across the length and breadth of the country.

 To fulfill its role as a responsible corporate citizen.

 To provide a supportive and rewarding environment for employees.

Peerless believes in "Excellence in Customer Service" in its pursuit to achieve its

corporate objective. The objective if Peerless has been to provide its certificate

holders a safe platform for depositing their savings and to ensure earning reasonable


Today, over 100% of the corpus of depositor‘s funds lie invested in Government

Securities and other Approved Investments which is their humble contribution to the

national cause. The Company's Investments have been on a path of steady &

consistent growth over the years.

The following strategies have been adopted towards its Investors, Employees,
Agents and the platform for Service Delivery –


 Offers a wide spectrum of need based Schemes along with excellence in

 The focus is on total satisfaction of the Customer and this will continue to
figure as our top most priority.
 Brings technology-based, prompt and personalized service, right at the
investors' doorsteps and assuring them of the safety of their investment.

Human Resources
Peerless recognizes that its strength is in ―Our People‖. It tries to ensure Total
Customer Responsiveness by:
 Providing flexibility by empowering people.
 Learning from the best world class processes.
 Adapting to change while remembering that change does not mean rejection
of the past. It means relearning currently prevalent philosophy for a brighter
 Continuing to achieve our goals through active cooperation and involvement
of our people, it aspires to become the benchmark of corporate teamwork.
Financial Advisors

 Provides excellent self-employment opportunities with ample scope of earning

to countless men and women across the country.
 Its objective is to help them build up stable, secure, rewarding and prestigious
marketing career under our Smart RojgarYojana.
Information Technology

 Enables efficient and prompt service to our customers by continuously

upgrading our IT service delivery platform.
 Adopts state-of-the-art technology across branches & service centers and
progressing networking initiatives.
Peerless offers a wide variety of Fixed & Recurring Deposit Schemes ranging 2
years. One can take full advantage of the value added benefits while creating wealth
at low risk. Through its vast Network of Branches, Agents & Financial Advisors
Peerless offers free Investment Advice at the customer‘s doorstep, keeping "Your
Interest" in mind. That's what makes PEERLESS a trusted household name in India.
Irrespective of whether one is a high net worth individual or a professional, or have a
modest monthly earning, one can choose from a variety of Fixed Deposits to invest
in, depending on the customer‘s investible surplus and its duration. Amongst the
Recurring Deposit Schemes, one can save convenient amounts at chosen intervals
i.e. Daily, Monthly, Half-Yearly or Annually. With the "Power of Compounding",
Peerless promises to grow the savings to a sizeable amount at the end of the tenure.

The following are some of the advantages which a customer can enjoy in Peerless
Schemes over the other companies:-


The Schemes offer Easy Liquidity through Premature Withdrawal after 1 year; Or
Loans against our Deposits.

The Schemes offer assured returns at the end of the tenure without being affected
by market risks or fluctuations.


The Schemes provide Insurance benefits like Mediclaim Insurance Cover etc at free
of cost.


Peerless offers its Depositors a Free Savings Card where the customer can save
while shopping.


Through a vast network of Agents, Financial Advisors and Branches, Peerless
provides personalized Doorstep Service to Depositors.

To sum up, Peerless deals with 3 types of savings schemes and under each scheme
there is one or more than one policy. The 3 types of savings schemes are as
 Recurring Deposit Schemes
 Fixed Deposit Schemes
 Recurring cum Fixed Deposit Schemes.

Under each scheme, the following are the policies:-

 Smart Family Plan.
 Smart Wealth Builder
 Daily Deposit.


 Future Smart Kiran, and
 Future Smart Partner.


 Future Smart Protector.


The study covers a period of 1 year i.e. financial year 2010. The data
regarding Peerless General Finance and Investment Company used in
the project are taken from the published Annual Reports & Accounts
2009-2010 of Peerless General Finance and Investment Company and
data‘s regarding the branch accounting procedure are taken from the
Asansol branch of the said company. Relevant managers and officers
were contacted on many issues.

Processing of the data has been done using the various accounting and
statistical tools and accordingly suitable references have been drawn in
order to suggest regarding the financial performance of the renowned
organization. All the data‘s collected are secondary data and rest of the
data‘s are collected by careful observations of the ongoing accounting
process of the branch.
ch5: Conceptual Framework


To understand the accounting procedure of a branch at first we have to understand

what is accounting and what is branch accounting.

ACCOUNTING: it may be defined as a process of collecting, recording,

summarizing and communicating financial information. So we can say that
accounting is a process through which financial data‘s are maintained in such a
manner that they can be used as and when required with a minimum effort and
minimum knowledge.

BRANCH ACCOUNTING: branch accounting is defined as the process of

accounting which is followed in a branch for maintaining the accounts on the behalf
of the head office and to provide the document required by the head office as and
when necessary.

Though a branch is located at some distance from a head office it carries on all its
activities under the guidance and control of the head office. Therefore it is
necessary to exchange information regularly between the head office and the branch
for the proper functioning of the branch. This required the head office and the
branch to keep proper records of accounts.

Above all each and every branch has to follow the guidelines prescribed by The
Reserve Bank of India (RBI) regarding the branch accounting procedure.

The need for branch accounting arises as to:

 Ascertain the profitability of each branch separately for a particular

accounting period.
 Ascertain the financial position of each branch separately at the end of
the accounting period.
 Assess the progress and performances of each branch.
 Incorporate the profit or loss made by the branch and its assets and
liabilities in the firm‘s final accounts.
 Ascertain the requirement of stock and cash for branch.
 Ascertain whether the branch should be expanded or closed..

Companies accounting system has been designed according to the guidelines of

the RBI with an objective to have a proper control on daily transactions, to safe
guard the company from fraud and at a same time to facilitate the handling of
transactions of the branch in the course of their dealings with public in order to gave
efficient service to them.

In a branch the accounting transactions are related to flow of funds either inward or
outward. So the transactions are broadly classified in to two parts:

1) Transactions related to the certificate holder.

2) Transactions related to the branch.

The accounting treatments for most of the business related transactions like
collections and payments are in-built in the system and are considered as back-end
operations When business transactions are taken place the entries are passed
through the system automatically with the recording of transactions but for certain
transaction some separate vouchers are to be generated which are also in-built in
the system.







OF LOANS 4. Ex-Gratia.




Financial statements or financial reports are statements which contain summarized
information of a firm‘s financial affairs, organized systematically. They are intended
to reveal the financial position of the enterprise, the results of its recent activities,
and an analysis of what has been done with earnings. On the basis of the
information contained in the financial statements, the users predict firm‘s earning
capacity and thereby make economic decisions- investment and financing. Besides
assisting the users in decision making, the financial statements help them to assess
the stewardship of the management. Thus, according to Anthony, ‗Financial
statements essentially are interim reports, presented annually and reflect division of
the life of an enterprise into more or less arbitrary accounting period- more or less
frequently a year‘.

Traditionally, the main objectives of financial statements were to communicate
financial performance and financial position of a concern. But with the passage of
time a wider role of financial statements is advocated.
The International Accounting Standard Board (IASB) has set out the objective of
financial statements in its study entitled ‗Framework for the preparation and
presentation of financial statements‘ published in July 1989 as- ‗to provide
information about the financial position, performance and chances in financial
position of an enterprise that is useful to a wide range of users in making economic
decisions‘-investment and financing.
Financial statements are prepared primarily for decision making. But the data
reported in financial statements are not directly usable in decision making. They
need to be analyzed and interpreted. Financial statement analysis is the process of
identifying the strength and the weakness of the firm by properly establishing
relationships between the items of financial statements. It helps analysts make an
understanding of past performance of the firm based on which they make prediction
about future performance and risk of the firm.
Financial statement analysis ascertains the significance of the data contained in the
financial statements with as view of understanding the liquidity, solvency, leverage
effect and profitability of the firm. The process of financial statement analysis can be
compared with the diagnostic process followed by a doctor. A doctor examines his
patient by conducting various tests like measuring body temperature, blood
pressure, blood sugar, etc. and comes to the conclusion about the state of his health
for deciding medicines to be prescribed. Similarly, a financial analyst analyses
financial statements with various tools of analysis. Based on the analysis he comes
to the conclusion about the financial health of and weakness of the firm makes
prediction about its future and prescribes the courses of action to be followed for its
overall improvement.

Modern financial statement analysis is not, however, restricted to only financial

statements. It also covers the study of the environment- both internal and external, in
which the company operates. Thus, financial statement analysis means the analysis
of relevant financial data extracted from financial statements along with non-financial
factors affecting the firm such as competitive and regulatory environment, customer
relation, risk involved, employee morale, etc.

There are a number of techniques for financial statement analysis. The following
techniques of analysis are generally used:-

 Comparative Statements.
 Common-size Statements.
 Index Number Trend Analysis.
 Ratio Analysis.
 Fund Flow Analysis.
 Cash Flow Analysis.
 Cost-Volume-Profit Analysis.
 Balanced Scorecard.
 Multivariate Analysis – Z-Scores.
 A-Scores.
 H- Scores.
 Working Capital Management.
As it is not possible to apply all the above mentioned techniques of financial
statement analysis, I have chosen Liquidity Ratios and Profitability Ratios of Ratio
Analysis to analyze the financial statement of Peerless General Finance &
Investment Company Limited. A detailed discussion on Liquidity Ratios and
Profitability Ratios has been carried out below.

Ratio is a fraction whose numerator is the antecedent and denominator is the
consequent. It is simply an expression of quantitative relationship of one number in
terms of another. It may also be defined as the relationship or proportion that one
amount bears to another, the first number being the numerator and the latter
denominator. Another explanation of the ratio may be the relation of the latter to the
earlier figure and computed by dividing the figure for the latter date or period by the
figure of the earlier date or period.
Accounting ratio is the mathematical expression of relationship between two relevant
accounting figures. It establishes a cause-effect relationship between two accounting
figures. They may be expressed in three ways:-

 Pure Ratio, e.g., current ratio, say 2:1

 Rates, i.e., ratio with reference to time period, e.g., stock turnover is 5 times a
 Percentage, e.g., net profit is 20% on sales.


Ratio analysis is the process of identifying strength and weakness in the various
areas of an organization with the help of ratios of relevant accounting figures. But
mere construction of accounting ratio will not serve any purpose unless it is analyzed
and interpreted.
Ratio may be just used as a symptom like body temperature, blood pressure or
pulse rate. As the physician analyses these information‘s to know the extent and
causes of illness, the financial analyst should also analyze the accounting ratios to
arrive at the conclusion regarding the financial position of the company.


Ratio analysis is a powerful tool of financial statement analysis. The inter-relationship
that exists among the different items in the financial statements is revealed by
accounting ratios. With the help of this technique, the financial strength and
weakness of an organization and its direction of change can be known. Thus, they
are equally useful to the internal management, prospective investors, creditors and
various other parties directly or indirectly involved with the organization for taking
financial decisions effectively in connection with the concern.
Besides, ratios are the best tool for measuring liquidity, solvency, profitability and
management efficiency of a firm. That is why, the role of accounting ratios are very
much significant to increase the efficiency of the management, to reduce the
expenditure and to increase the rate of profit.

Ratios may be classified according to the sources wherefrom the accounting data
are taken, according to the purposes of the interested parties, according to the
importance or the approach of analysis, etc.
However, the most commonly used classification of ratios are according to the needs
of various interested groups like shareholders, debtors, creditors, investors,
management, etc. As per this approach, ratios are mainly divided into the following 4

1. Liquidity Ratios.
2. Solvency Ratios.
3. Turnover/ Activity Ratio
4. Profitability Ratios.
Under each of these groups there are a few ratios. As I have chosen Liquidity Ratios
and Profitability Ratios for the study so a brief description of those are s is given

Liquidity Ratios measure the ability of a firm to meet its short-term obligations. Short-
term is conventionally viewed as a period up to one year. By liquidity, we mean the
amount of cash or cash equivalents the firm has on hand and the amount of cash it
can arrange in a short period of time. Cash is the most liquid asset. It includes
currency and demand deposits with bank. Cash equivalents are short-term highly
liquid investments that are readily convertible into known amounts of cash and which
are subject to an insignificant risk of changes in value. Stock and debtors are
somewhat less liquid.

Liquidity is essential for smoothly conducting business activities. If the firm has a
poor liquidity position, it may not be able to make timely payments to the creditors
and, in effect, will not be in a position to buy goods or services in future on credit.
Poor or insufficient liquidity may result in a serious fundamental problem, particularly
in times of adversity, such as when a business unit is shut down by strike or a steep
rise in the price of a raw material. On the other hand, high liquidity provides flexibility
to take advantage of changing market situations.

The ratios which indicate the liquidity of an enterprise are:-


1. Current ratio 1. Debtors turnover ratio

2. Liquid/Acid/ Quick ratio 2. Creditors turnover ratio
3. Cash/Absolute Liquid ratio 3. Inventory turnover ratio
4. Interval Measure

The key interest of the owners of a business, e.g., the equity shareholders in the
case of a company is the profitability. Profitability means the returns achieved
through the efforts of the management on the funds invested by the owners of a
business. The amount of profits earned by a business has little significance unless it
is related to its source.

Profitability is the capacity of an enterprise to make profits as measured by

accounting ratios relating profit to sales or to investment. It is the net result of a large
number of policies and decisions. Profitability ratios measure management‘s overall
efficiency as shown by the returns generated on sales and investments.
The ratios which indicate the profitability of an enterprise are:-


In Relation To Sales In Relation To Investment

1. Gross Profit Ratio 1. Return on Investment

2. Operating Ratio 2. Return on Capital
3. Operating Profit Ratio 3. Return on Equity Capital
4. Net Profit Ratio 4. Return on Total Resources
5. Expense Ratio 5. Earnings per share
6. Price – Earnings Ratio
Ch6: accounting prOcedure for
Certificate holder

In this chapter we going to discuss the accounting procedure related to the customer
or the certificate holder.

A. Accounting for transaction connected to collection of money.

1. New Business.
2. Renewal Collection.
3. Collection of Loan and interest.
4. Other.

B. Accounting for transaction connected to payments of money.

1. Maturity.
2. Pre-Maturity.
3. Death Claim.
4. Ex-Gratia.
5. Issue of Loan.

The process by which a new business is carried is shown below:

 Receipt of Proposal Form: at first a proposal form is received at the

designated counter which is properly filled by the proposer or customer.
 Verification of Proposal Form: then there should be a person who should
verify the identity of the customer, completeness of form, correctness of data
and etc.
 System entry: this can be done in three stages. First by the front office just
after receiving the Proposal Form. Secondly by the person verifying the
Proposal Form and finally by the cashier on receipt of cash, cheque or
demand draft.

So the collection can be of three types:

 Collection through Cash.

 Collection through Cheque.
 Collection through Demand Draft.
 Collection through Mixed Mode.

After the transactions are recorded by the cashier in to the system following
accounting entries are takes place in the system automatically:


Accounting entries are passed ones the cashier receives collection after receiving
the proposal form duly verified by the verifying person and after authenticating the
same in the system.
Upon the confirmation of the transaction by the cashier in the relevant screen for
collection against new business following accounting entries will take place in the

Cash in Hand (a/c code 230910) a/c DR

To office collection (new scheme)

(A/c code-050346) a/c CR

To collection (a/c code-050359) a/c CR


Cashier has to follow the prescribed procedure for recording collection through
cheques in order to allow correct accounting treatment to take place in the system.

Care has to be taken for the following:

 It should be verified that correct potion has been selected as mode of

payment in the proposal form.
 Details of cheque (number, date, bank etc.) to be entered in the
specific menu and field in the system.

Thus all cheque (local as well as outstation) collection will be credited to the account
head ―suspense cheques a/c (code-050306)‖ till the date of the realization of the
Upon confirmation of the cheque realization after reconciliation of bank statement
and consequent upon making entries by the cashier in therelevant screen for
collection through cheque following accounting entries will take place in the system.

Suspense-cheques (a/c code-050306) a/c DR

To collection under table-59(a/c code-050359) A/C CR

To servicing charges (a/c code-620002) A/C CR


Procedure for recording collection through demand draft is almost the same as that
for cash barring few exceptions. Collection through demand draft will be processed
through purchasing demand draft.

Upon confirmation of the transaction by the cashier in the relevant screen for
collection against new business following accounting entries will place in the system.

Demand Draft DR

To office collection (new scheme)

(a/c code—050346) a/c CR

To collection (a/c code-050359) a/c CR


Collection through mixed mode (is partly cash/DD and partly by cheque) subscription

Cashier has to follow the prescription procedure for recording collections through
cheques as well as cash in order to allow correct accounting treatment to take place
in the system.
All the procedure will be same except the cash and DD received will be credited to
the a/c head ―Suspense-Office collection a/c (a/c code-050313)‖ in the system
instead of directly crediting to the respective schemes a/c. Amount transferred from
the Subscription Deposit will be credited to ―Suspense-Office collection a/c (a/c
code-050313)‖. On the date of realization of the cheque credit balance of this a/c
together with balance lying in the ―Suspense-Cheque a/c (a/c code-050306) will be
reversed and transferred to the respective schemes account.


The process of renewal collection through cash will be same as collection for the
new business but instead of recording in the head of new collection it will recorded
under the heads of respective scheme for which it is collected.


There are two stages of accounting entries one upon receipt of Money order from the
post office when a receipt has to be generated in the system recording receipt of the
amount and another when renewal entries are recorded in the a/c of the certificate

Receipts for Money Order collection are to be generated on the same day of receipt
of the amount from post office through preparation of the Credit Voucher (RECR)
through the system by the Main Cashier.

This make the amount received from Post Office Money Order be credited to the
―Suspense (Money Order Received)(a/c code-050308) A/C‘ in the cash book. If
Money Order amount is received by cash or cheque or pay Order, cheque nos. pay
order nos. is to be mentioned in the credit Voucher (RVCR).
Consequent upon recording of the each of the transaction for the renewal collection
in the a/c of the certificate holders following entries will be incorporated instantly in
the General ledger (Cash Book).

Other Miscellaneous expenses (a/c code-411310) A/C DR

Suspense (MOR) (a/c code-050308) A/C DR

To collection under (Table-59) (a/c code-0503059) A/C CR

To Subscription Deposit (Table 26 onwards)

(A/C code-050110) A/C CR

To Other Miscellaneous Receipts (a/c code-620000) A/C CR

To Interest Received from C.H for delayed payment

(A/C code-610200) A/C CR


In case of the renewal collection (both for 1 st year Subscription and Renewal) by
cheque, the system generated receipts would be issued on the date of receipt of
cheque thereby updating the due date instantly but collection amount would
automatically be credited to ―Suspense (cheque) (a/c code-050306) A/C‖.

Upon entering the realization of cheque, system would automatically reverse the
accounting entries by debiting the ―suspense (office collection) amount received
through other mode would be debiting to ―suspense (office collection) (A/C code-
050313) A/C‖ and crediting the office collection A/C for respective schemes.

The reversal entries are to be passed entries on the date of realization of respective
cheques or on the available date on which cash book is yet to be closed, whichever
is later.
However all collection received through cheques in a particular month are to be
incorporation in the same month without fail of the cheques are reported in the bank
statement as enchased within the month itself.

The following entries will automatically be affected immediately in the Cash Book
after entering the transaction in the system.

Other Miscellaneous Expenses (a/c code-411310) A/C DR

To collection under Table 59 (a/c code-050359) A/C CR

To subscription Deposit (Table2-9)

(A/C code-050100) A/C CR

To subscription Deposit (Table 10-25)

(A/C code-050102) A/C CR


After the proper checking of all the documents received with Discharge Form Branch
Manager/Branch Accountant/Authorized Official will verify the documents and
approve the payment with their seal and signature.

Payment may be released by account payee cheque/bank draft (net of bank

charges)/Money Oder (net of commission) and by cash as the case may be.

Payment is to made by crediting ―cash/bank (operative) A/C‖ and debiting the

following accounting head as the case may be-

Maturity Value Paid Old Fund (A/C code-040104) A/C

Maturity Value Paid New Fund (A/C code-040107) A/c

Maturity Value (Paid-up Value)-old Fund (A/C Code—040110) A/C

Maturity Value table-53 (A/C code-040147) A/C

After the completion of recording Maturity Payment in the system a printout of

Maturity payment register has to be taken by the Main cashier.
Verification of application of the certificate holder and preparation of discharge form should be done.

While doing so care should be taken where the last payment of subscription was made
by cheque and ensure that the cheque has duly been encashed before preparation of
Discharge Form. This step may enable the branch to avoid the possibility of the
excess payment, if any.

While Discharge Form for pre Maturity Table-55 and others are prepared through
computer, Branch personnel should run PRE-MAT/MATURITY POSTING Batch in
accounts Module on daily basis.

After the receipt of completed discharge form along with original certificate, payment is
the released by making necessary entries in the system. This result into debiting ―Pre-
mature withdrawal under respective table A/C‖ and crediting Pre-maturity payment A/C
under respective table i.e.

Pre-mature withdrawal New Fund (code-040115) A/C DR

Pre-mature withdrawal Table-53(code-040244) A/C DR

Pre-maturity under Table-54(code-040247) A/C DR

To Cash/Bank (operative) A/C CR


After receipt of properly completed Discharge form along with other prescribed
documents payment to be released to the Nominee/Legal heir of the certificate
holder in the case of his death by following entry in the system.

Refund of Subscription (Death)-New Fund (code-040120) A/C DR

Refund of Subscription (Death)-Table-54 (code-040226) A/C DR

To Cash/Bank (Operative) A/C CR

Loans are granted by the branches against the certificate.On return of the loan bonds duly signed by
the certificate holder and have been properly witnessed the payment is to be released by account
payee cheque/bank draft (net of charges) or by cash after the relevant debit voucher is duly signed by
the certificate holder on revenue stamp of the Re.1.00 if loan amount exceeds Rs 5000/-. System
entry makes following entries in the respective account heads:

Loan against certificate (New fund)

(code-220916) A/ DR

Loan under Table-53 (code-220917) A/C DR

Certificate Master in the system should be updated positively before delivery of the cheque to the
certificate holder.
Amount received towards repayment of loan is to be first applied the interest amount
outstanding and balance remaining would be applied towards the principal.

The accounting entry for recording repayment of principal and interest are as below:

For principal:

Loan against certificate (New Fund) (code-220916) A/C CR

Loan under Table-53 (code-220917) A/C CR

For Interest:

Interest received on loan against certificate A/C (code-010203) CR

After recording of loan payment and repayment into the system ―loan payment
register‖ and ―loan repayment register‖ will be generated and amount to be tallied with
the payment and repayments documents.

After completion of the checking loan account posting batch run is to made through
accounts module in the case of PBMS system.
When ex-gratia can be paid: When the death of a certificate holder takes place and the
conditions and circumstances around the death do not fulfill the prescribed criteria and
therefore do not quality for refund of subscriptions an ex-gratia will be made by
debiting the following accounts;

Ex-Gratia to certificate Holder (Table2-90 (code-410106) A/C DR

Ex-Gratia to certificate Holder (Table-10 onwards)

(code-410103) A/C DR

How much to pay: In the case of table 2-9 the Ex-gratia payment will be made for the
entire subscriptions deposited by certificate holder minus Rs 1.00.but in case of Table
10 and onwards, interest on deposit is also considered for Ex-gratia payment.

 After completion of Death claim payment Recording through computer as print

out of Death Claim Payment Register should be taken and amount should be cross
tallied with the payment documents.

 The payment register is to be checked and certified by the concerned cashier

and anyone of the branch officer under their seal signature.

Existing certificate holder may re-invest the maturity value (fully or partly) on the
maturity of his/her maturity amount (partly or fully as the case may be) along with the
maturity discharge form and with original certificate.

After re-invest adjustment, if there is any balance amount left for disbursement to the
certificate to the holder, the said balance amount upto maximum limit of Rs 500 is
permitted to be disbursed in the cash to be concerned certificate holder only on
production of identity proof. This balances amount may be paid by a/c payee cheque
after incorporation bank a/c particulars of the certificate holder on the cheque , or by
bank draft (less bank charges) or may be remitted through money order (less M.O
commission) upto to the ceiling of Rs 2500 only, if so desired by the certificate holder
and at the sole discretion of the Branch Manager/Accountant to the last known
address of the certificate holder recorded with the branch.

The following accounting entry will appear automatically in the branch‘s book :

Maturity value paid new fund (code-040107 A/C DR

Maturity value paid old fund (code-040104) A/C DR

To office collection (new scheme) A/C CR

To loan against certificate A/C CR

To interest on loan against certificate A/C CR

To TDS on maturity payment (if any)

(code-240110) A/c CR

To servicing charges (code-620002) A/C CR

To Bank (operative)/cash (for M.O) A/C CR

Dishonor of cheque:

System will automatically take care of passing of reversal entry. In mixed mode
amount lying in ―suspense (office collection) A/C‖ will automatically be transferred to
the subscription Deposit A/C through system, in case of dishonor of the relative

Unidentified Subscription Deposit (USID):

Subscription Deposit is the Suspense A/C from collection from customers (Renewal
Collection) where amount received is parked pending adjustment of the same. This
situation mostly occurs in case of collection amount received through Money Order
where certificate number (for renewal collection) is not clearly mentioned or is not
available with the Branch.

The cashier will prepare the Credit Voucher called RVCR through the menu
(A/Cs>Voucher Entry>Cash Receipt Voucher) after the receipt of Money order
amount. This result into following accounting entry in the system:

Cash in Hand (A/C code-230910) A/c DR

To Suspense (M.O Receipt)

(A/C code-050308) A/C CR

At the day end all such M.O Receipt amount for which there is no information is
available, will be transferred to USID by Debiting Suspense M.O receipt (A/C code-
050038) A/C and crediting relevant Subscription Deposit A/C. For all such cases
Branches are required to serve a computer printed letter (as per specimen given in
Annexure 3) to the Depositor till implementation of PIIL (Peerless Integrated
Information System) together with the respective S.D receipt narrating therein the
reason for crediting the deposit amount to S.D A/C with the request to take corrective
action immediately. Reversal/refund of USID amount customer has to submit a written
request along with M.O receipt or other relevant documents/supporting and identity
proof to the Branch, such request has to be verified and passed for payment by an
officer of the Branch. Then a Refund Voucher has to be generated through the system
and has to be authorized by an officer of the Branch. If the amount is required to be
credited to the account of the certificate holder reversal entry will be passed for credit
to the account.

Any refund out of Subscription Deposit is to be made by cheque only. For such
refund/reversal SD a/c will be debited and bank (operative) a/c/certificate a/c will be


Branch are required to follow certain End of Day accounting procedures in order to
complete the accounting processes and enable the system to provide correct
accounting picture.

Running EOD procedure in the system

 EOD frequency branch have to be run the End of Day procedure in the
system on a daily basis. In no circumstances EOD should be kept
 Sanctioning of vouchers before EOD.

Before performing the EOD procedure all pending vouchers appearing in the system
have to be sanctioned.

Usual EOD accounting procedures are

 Reconciliation of the physical cheques.
 Sanctioning of vouchers before EOD.
 Updating Money Order register.
 Updating Certificate dispatch register.
 Updating cheques/MO return register.
 Taking back up of branch date files.

Daily cash balancing

 Preparation of daily cash book.
 Reconciling physical cash.
 Reconciling daily collection, payment etc. with physical cash.
 Reconciling cashier wise physical cash.
 Conforming EOD into the system.
End of Month (EOM) PROCEDURES:
Generation of Trial Balance:

Branch should generate a monthly trial balance after performing EOD and reconciling
cash position.

Points should be taken care of before preparation of Final Trial Balance

1) That cash/cheque/demand draft balance has tallied with physical balance.

2) That all Adjustment/Journal entries have been passed through computer

related to bank reconciliation i.e. bank charges, stale cheques issued for more than six
month etc.

3) That bank reconciliation statement (for all the banks) prepared and tallied
with Trial Balance and Balance of Bank Statement.

4) That statement of liabilities for state cheque prepared and tallied with Trial

5) That reconciliation of printed material prepared.

6) That reconciliation of loan to certificate holder prepared and tallied with Trial

7) That inter-branch transaction reconciliation statement prepared through IBT

menu from computer.

8) That reconciliation of advance to staff-code-240210 and 240211 to be

prepared separately and agreed with the balance of advance ledger.

9) That the collections and payment reconciliation with EDP and Trial Balance
have been prepared and send to regional office with floppy of the Trial Balance of that

10) That before sending Trial Balance to regional office each and every accounts
head with the general ledger has been checked. Printout of general ledger in each and
every month has been taken and checked. Ensure that the balances are agreed with
the general ledger and Trial Balance.

Submission of Trial Balance along with control sheet of collection and payment

1. Branch must submit to the respective regional offices the dully reconciled and
signed Trial Balance along with reconciliation statement of the collection and payment
within 7th but not after 15th of the following month.
2. On receipts of such Trial Balances from the branches/offices along with the
relative floppies and reconciled statements of collection and payment, the respective
regional offices will verify the trial balance, relative floppies and the reconciled
statement and forward the O.K floppies along with the reconciled statements of
collection and payment to the general manager (EDP) for their scrutinisation,
compilation of the branch wise figures and submission of the same with the general
manager (Finance). If any difference observed at EDP between the figures of Trial
Balance and the statement of collection and payment of any offices, the relative
statement also to be send to general manager (Finance) along with the floppy(s). All
regional accountants/account /officer will be made responsible for monitoring the Trial
Balance generated at the branches/offices in their respective regions. Other related
statements like Bank reconciliation, A to U, periodical report etc. will to be continue to
be sent as usual to general manager (Finance) with forwarding letter.

3. There should not be any differences between the collection/payment figures as

per floppy and Trial Balance.

4. After dispatch posting, if any collection/payment is reversed through journal

entry, details such adjustment with collection/payment figures should to send to EDP
for updation of their records accordingly.

5. Intimation of dishonored cheque is also to be sent to EDP, if adjustment is made

after sending the collection floppy.

Regularization of data entries on the back date in respect of new cases:

There may be occasion, due to bulk collection certain new business cases have been
missed out for making data entry into the system. In PBMS, provision has been made
available for entering and processing of any new cases on back date. In such
situations branches/offices will be allowed to make data entries at their own of those
omission cases of new business which were accepted and detected in the current
financial year only. Omission of any new cases in the previous year, if detected, are to
be referred to the manager (EDP) by the concerned branch/office along with
supporting documents for necessary data capturing and regularization of all relevant

BRS Preparation:

 Branches are required to prepare monthly reconciliation of bank accounts within the
first week of every month.

 Daily/weekly statement of accounts from the bank must be obtained and it must be
verified against book entries. If there is any mistake in the bank statement the same
has to be brought to the notice of the concerned bank in writing immediately and
after obtaining satisfactory reply from the bank it is to be adjusted before drawing of
monthly trial balance.

 Bank charges levied by the bank are to be adjusted by debiting bank charges and
remittance cost account.

 All cheques issued by branch must be entered in the cheques issued register.

 All staled cheques beyond 6 months are to be cancelled.


Branch will be required to make deduction of taxes at the time of making payment
generally under the following heads:

 Salary

 Agent Commission

 Rent

 Payment to Contractors and Suppliers

 Advertisement

 Payment to Certificate Holder

TDS of Commission brokerage:

 At the end of month branch has to generate TDS deduction Detail Report through
the system and tally the total amount deducted with amount of TDS
commission/brokerage account.

 The total TDS so called collected is deposited to the nominated bank.

 On receiving the challan duly stamped by bank, the information has to be entre in
the system.

 After entering the TDS control report has to be generated and total amount to be
tallied with total amount deposited through challan.

TDS on Maturity Payment:

 At end of the month branch has to generate TDS deducted statement (maturity)
through the system and tally the total amount deducted with the amount of TDS on
maturity payment account of general ledger.

 Deposit of entire amount is made to authorized bank.

 Statement of payment of TDS has to be checked with the individual TDS deducted
documents so that the amount tallied with the general ledger account.
 A challan is too prepared and then the entire information is fed into system.

TDS against Salary:

 Tax is to be deducted into monthly basis.

 Tax deducted should be credited to the employees‘ tax account.

TDS against Rent:

 Tax is deducted against rent payable.

 Tax ix deducted should be credited to the rent account.

TDS against Contractor’s Payment:

 Tax deducted should be credited to contractor‘s IT account.

Issuance of Certificate for tax deducted:

The person responsible for deducting tax from payment made has to issue a TDS
certificate in the prescribed format. The PAN number of payee has to collect from
him in writing and is to mentioned in TDS certificate.
 Purchase of furniture, fixture or equipment for branch and/or of manager‘s
residence/designated officer (where ever permitted) will require prior sanction of
component authority as per powers vested in them for sanctioning such
expenditure. Branches are required to send expenditure proposal with requisite
quotation to regional office for obtaining approval from head office.

 Purchase of computer hardware/software would not be covered by the

provisions, as these items will only be supplied by head office. Any request for
requirement can be made to the head office after appropriate justification.

 While seeking permission for purchase of any article, the component authority
should be advised as to why the purchase is necessary and of the details
regarding its size and make and quotation had been invited.

 Branches are to negotiate the best deals for the items to be purchased and check
the warranty clause/benefit available. They should also see whether post
warranty service is available.

 Payment for all capital items has to be made to the debit of head office account
(general) (code).ancillary expenses such as octroi duty, railway freight and such
other charges incurred on furniture and fixture should also be debited to head
office account (general) (code).

 Cost of only durable articles should be debited to head office account (general)
(code). The cost of items like bulbs, tubes, fluorescent lights, shades, bamboo
basket, ink stands foot rests etc, which are subject to quick wear and tear should
be debited to repairs to others account (code). A separate list of such items
should be maintained with dates of purchases to ensure their proper use and

 No advance payment should be made for the purchase unless specifically

authorized by component authority and all payments should be made account
payee cheque only on receipt of bills from supplier‘s and after being satisfied with
the goods supplied.

 Under the computerized environment many of the accounting entries are taken
care of by the system, thus obviating the necessity of preparing vouchers. But
certain transaction on day today basis would call for generation of vouchers from
the system. These are mainly of following types:

1 .Debit vouchers

2. Credit vouchers

 All such vouchers for a day should be stitched together in a packet and properly
sealed. The vouchers should remain in joint custody of officers, one of whom
should be the branch accountant should daily go through all the voucher of the
previous day and initial at the top of bundle of vouchers is taken of his having
done so.

 Whenever there is a necessity of taking out old vouchers for inspection, the
custodians should permit vouchers to leave their possession only on the
requisition of an officer who will put initial for its receipt in a register/pass book
maintained for this purpose.


 Other than records which are generated from the system, branches maintain a
record of the books which are in use in the branch. Each type of the book in the
branch is serially numbered and record maintained in a register with the
following columns:

1) Date

2) Number

3) Description

4) Period of time

5) Remark

 Besides the book in current use, those related to the previous one or two years
as convenient should be kept in the branch. Books relating to earlier years
should be stored in the record room. When books are transferred to record
room, a suitable remark is made in the register kept in the branch.

 Details of the records should maintained in ―register of old records‖, which may
be maintained in the following form:
Date to which Description Date of Initial of branch
relate destructive accountant

 Entries in the register of the old ―records‖ should be checked and initiated by the
branch accountant. This register will be used at the time of destruction of records.

 Old records are kept systematically in locked almirahs or on shelves. As far as

possible, records relating to cash department should be placed together and
arranged in chronological order.

 Books or files taken for reference purpose should be delivered only on a requisition
from an officer who will put initial of receipts in a register maintained for the purpose.
When they are received back, the relative entry in the register should be marked off
under the initials of custodians of the old records.

 Care is taken to see that the old records are not damaged by rats and white ants, or
affected by dampens or in any other manner.

 The manager examiners all old records at regular intervals, to see that they are
properly maintained and preserved and books labeled and placed neatly and in

The following books are maintained by the branch:

 Cash collection register

 Cheques/drafts received register
 Cash in safe register
 Cash move register
 Banker‘s memorandum register
 Subscription deposit register
 Cash book
 General ledger
 Subsidiary books
 Branches are subject to following audits:

 Statutory audit

 Internal audit

 Concurrent spot audit

 Inspection

 RBI inspection

 Broad objectives of all audits are:

 Finalization of accounts, maintenance of accounting standard,

presenting a true and fair picture of the accounts.

 Providing of the affairs of the company

 Assuring the broad on how risks are managed

 Bringing about process improvement

 Detection and discipline and transparency

 As a means of getting early warning signal

 Use as a performance monitoring tool.


It is mainly carried out at head office for the company as a whole. But statutory
auditors may select certain branches to perform audit procedures.


Although objective of performing statutory audit at branches is purely prerogative of

statutory auditors, however following aspects will be of utmost importance to the

 Overall control environment at branch.

 Accuracy and completeness of data processing.

 Existence of internal controls in various processes of bank operations.

 Maintenance of books and records.

 General branch administration.

 Compliance issue.

Branch Support:

 Statutory auditors will visit at the year end.

 Branch should exhibit high level of cooperation.

 Branch head should ensure that following statements are ready:

 Adjusting trial balance

 Bank reconciliation statement

 Loan against certificate reconciliation

 Liability for stale cheque reconciliation

 A to U statements.


 All the branches will be covered by internal audit on periodic basis.

 It is generally being carried out by outside agency being CA firms.


 Ensure proper compliance of various norms and procedures fixed by the

head office related to branch operations.

 Ensure efficiency of various controls.

 To review general up-keep, office decorum and house-keeping of the


 To review status of prior year recommendations/observations internal

audit, spot audit, special audit.

 Ensure proper general ledger balancing.

 Ensure statutory compliance.

 Assess branch performance and audit rating.

 Assuring board on how risks are being managed.

 Bringing about process improvement.

Roles and responsibilities:


 To carry out audit according to the audit program given by the head office.

 To carry out audit with the spirit of watchdog and not as a blood hound.

 To point out any inconsistency/irregularities found during the course.

 Suggest remedial action thereon and help branch in rectifying the same
on the sport

 To discuss the observation with the branch management and obtain their
comment before reporting to the head office.

 To carry out audit in such a manner that day operations of the branch are
not hampered.


 To display high level of cooperation.

 Timely availability of required information in the desired manner.

 Be open and frank to the in-house internal auditors.

 To carry out/implement corrective measures instantly as suggested by


 To consult head office in case of any discrepancy.

Branch performance and audit rating:

Internal auditors will be required to perform rating of the branch based upon the
assessment of the branch performance in the following areas:

 Quality and timeliness of completion of MIS and branch accounts

including position of updating of all payment transaction, various

 Cost effectiveness of operations.

 Depositors serving and complaint redressed.

 General upkeep of branch.


Payment to certificate holder is one of the most important areas from the risk
management point of view while it is the constant endeavor of the company to
ensure hassle free and speedy payment to the certificate holder, at the same it is
desired that care is taken in ensuring payment to the right person. The main concern
while making any maturity payment is that the payment is made-

 To the rightful person.

 Correct amount in time.

With this concern the company introduced the concept of concurrent spot audit.


 To ensure proper compliance of various norms and procedures fixed by

the head office related to payment to certificate holder.

 To ensure proper segregation of duties and responsibilities.

 To strengthen internal control.

 To ensure proper and timely recording of payment to certificate holders.

 To review general upkeep, office decorum and housekeeping of branch.

 Ensure timelines and accuracy of branch MIS reporting

Branch support:

The company considers it a value addition exercise which encourages branch to

enhance its performance by overcoming inefficiencies in the problem areas as
pointed out by the concurrent spot auditors. So full supports need to be extended.
Branches are subject to head office inspection on a periodic basis which will be
carried out by the official of the inspection cell of head office/regional office.


 Branch inspection is a snap shot review of the functioning of the branch.

Itreviews the status of various jobs at the branch .

 Inspection is intended towards bringing out all operational and

administrative irregularities and inefficiencies in a very concise manner.

Branch support:

 Branches should make available the relevant information to the


 Branch should be ready with the following information:

 Adjusted trial balance.

 MIS report.

 Weekly work status.

 Bank reconciliation statement.


 The company being a residuary non-banking financial company is

regulated by various norms and regulations framed by RBI.

 So RBI may select certain branches for its inspection.

 The concerned branch will be intimated in advance about the RBI

inspection and its schedule.

 Accordingly branch should be ready with all the details and keep books
and records up to date.

 Branch managers should cooperate with the RBI inspections in

performing their duties by making available information required by them.

 In case of clarification branch should get it clarified with the head office
before commenting to RBI inspections.
Ch11: L Analysis and Interpretation of
Financial Statement

It is the ratio between quick liquid assets and quick liabilities. It is also called ‗Acid
Test Ratio‘, ‗Quick Ratio‘, or ‗Near Money Ratio‘. The normal value for such ratio is
taken to be 1 : 1. As a tool for assessment of liquidity position of firms, it is
considered to be a more rigorous and penetrating test than that of current ratio as it
eliminates the snags in the same, since it indicates the relationship between strictly
liquid assets whose realizable value is almost certain on the one hand, and strictly
liquid liabilities on the other. Liquid assets comprise of all the current assets minus
stock and pre-paid expenses, whereas, liquid liabilities comprise of all the current
liabilities minus bank overdraft. Stock is excluded from liquid assets on the ground
that they are normally sold on credit, i.e., converted into debtors and then the
debtors must be collected before cash is realized. Thus, stock is two steps away
from cash. Another reason for omission of stock in liquid assets is that stock is
valued in different ways by different firms. Pre-paid expenses are excluded due to
the fact that they are used up in operations rather than converted into cash and, in
effect, are not capable of covering current liabilities. Bank overdraft is excluded on
the ground that it is not required to be paid-off in the immediate future.
It is obtained by dividing the Quick assets by Quick liabilities
Quick/Liquid Ratio = Quick assets / Quick liabilities
Where, Quick assets = Current Assets - Stock - Pre-paid expenses
Quick liabilities = Current liabilities - Bank overdraft
Current Assets = 2817.03(Rs. In million) [annexure 1(9)]
Stock = not found in annual reports
Prepaid Expenses = not found in annual reports
Current Liabilities = 1278.72((Rs. In millions)
Bank Overdraft = not found in annual reports [annexure 1(5)]
Thus according to the data available the liquid ratio of PGFI is
2817.03/1278.72 = 2.20
Thus it is observed that the amount of quick assets is the same as that of current
assets. This is because the company does not have any stock or pre-paid expenses.
Significance and Interpretation:
It has already been stated that Quick Ratio is, practically, the true test of liquidity. It
indicates the ability of the business to pay its maturing obligations without delay and
difficulty. Thus, a high Quick Ratio indicates that the firm is quite able to pay-off its
current obligations without difficulty, where as, a low Quick Ratio will create an
opposite situation, i.e., it is not possible for the firm to pay-off its current obligations,
which indicates a faulty liquidity position
In case of PGFI we find that the liquidity/quick ratio is 2.20:1 is quite high as 1:1 is
considered to be satisfactory. A higher quick ratio indicates that the firm has the
ability to meet its current or liquid liabilities in time.A point to be mentioned over here
is that PGFI does not have any Bank overdraft, so, the amount of quick liabilities is
the same as that of current liabilities.


These ratios measure the relationship between earnings and sales of the company.
It can be of the following types as follows:-

 Net Profit Ratio

This is the ratio of net profit to sales and is expressed as a percentage. It indicates
the amount of sales left for the shareholders after all costs and expenses have been
met with. The higher the ratio, the greater will be the profitability and higher will be
the return to the shareholders. In general, 5% to 10% may be considered as normal.

Net Profit Ratio = Net Profit / Net Sales * 100

Thus according to the data available the Net Profit Ratio of PGFI is
Net Profit = 2361.74 (Rs in millions) [annexure 2(20)]
Net Sales (Interest + Dividend) = 4405.55 (Rs. in millions)
Net Profit Ratio = (2361.74/4405.55)*100 = 53.6 = 54%

Significance and Interpretation:

This ratio measures the overall efficiency of the management. Practically, it
measures the firm‘s overall profitability. It is the difference between Gross profit and
operating and non-operating profit after deduction of tax. It is also a very useful tool
to control the cost of production as well as to increase sales. This ratio is very
significant as, if it is found to be very low, many problems may arise like dividend
may not be paid, operating expenses may not be paid, etc. Moreover, higher profit
earning capacity protects a firm against many financial hindrances and, naturally,
higher the ratio, the better will be the profitability.

However, in case of PGFI, we find that the net profit ratio for all the five years is well
above the standard. The high ratio also indicates that the firm would be in an
advantageous position to survive in the face of falling selling prices, rising costs of
production or declining demand for the product. Similarly, the company can make
better use of rising selling prices, falling costs of production or increasing demand for
the product. Thus, the firm can accelerate its profit at a much faster rate.

 Operating Profit Ratio

This ratio is a modified version of the net profit ratio. It measures the relation
between operating profit and net sales. It is also expressed in percentage and is
computed as follows:-

Operating Profit Ratio = Operating Profit / Net Sales * 100

Where, Operating Profit = Operating Revenue – Operating Expenses

In case of computation of operating revenue and operating expenses, I have taken

the following items from the Profit and Loss Account of the company under the
respective heads:-

Items under Operating Revenue

1. Processing & Maintenance Charges or, Service Charges = 7.04 (Rs. in
[Annexure 2(32)]
2. Interest & Dividend = 4405.55 (Rs. in millions) [annexure 2(29)]
3. Provision / Liability no longer required written back = 750.49 (Rs. in millions)
[annexure 2(36)]

Items under Operating Expenses

1. Commission, Incentive and other payments to Field Force (Net) = 256.35
(Rs. in millions) [annexure 2(1)]
2. Return / Interest to Certificate-holders = 1534.61 (Rs. in millions)
[annexure 2(2)]
3. Insurance Premium under Accident Benefit Scheme = 28.01 (Rs. in
millions) [annexure 2(4)]
4. Administration Expenses = 1182.04 (Rs. in millions) [annexure 2(5)]
5. Depreciation = 73.03 (Rs. in millions) [annexure 2(8)]
6. Bad & Doubtful Debts / Receivables written off = 95.89 (Rs. in millions)
[annexure 2(10)]

Total Operating Revenue = 7.04 + 4405.55 + 750.49 = 5163.08 (Rs. in millions)

Total Operating Expenses = 256.35 + 1534.61 + 28.01 + 1182.04 + 73.03 + 95.89
= 3169.93 (Rs. in millions)
Operating Profit = 5163.08 - 3169.93 = 1993.15 (Rs. in millions)
Net Sales = (Interest + Dividend) = 4405.55 (Rs. in millions)
Thus Operating Profit Ratio = (1993.15/ 4405.55) * 100 = 45.24%

Significance and Interpretation:

It is a modified version of the net profit ratio since it deals with a specific part of the
net profit- the operating part and excludes the non-operating part. Like net profit
ratio, this ratio also measures the overall efficiency of the management and the firm‘s
operating profitability. It indicates the amount of profit earned for each hundred
rupees of sales. Thus, the higher the ratio, the better it is for the firm.
In case of PGFI, we find that the operating profit ratio is high. This is a good sign for
the company as it depicts high efficiency of the management and a high operating

 Operating Ratio
This is the ratio of operating expenses or operating costs to sales. It may be
expressed as a percentage and it reveals the amount of sales required to cover the
operating expenses. The lower the ratio, the higher is the profitability and the better
is the management efficiency. Generally, 80% to 90% is considered to be the

Operating Ratio = Operating Expenses / Sales * 100

Total Operating Expenses = 256.35 + 1534.61 + 28.01 + 1182.04 + 73.03 + 95.89

= 3169.93 (Rs. in millions)
Net Sales (Interest + Dividend) = 4405.55 (Rs. in millions)
Thus, Operating Ratio = (3169.93/ 4405.55) * 100 = 71.95% = 72%

Significance and Interpretation:

The Operating Ratio shows what percentage share of sales is consumed by
operating expenses and, conversely, what proportion is available for meeting other
expenses. Thus, this ratio is very important for analyzing the profitability of the firm.
As a working proposition, a low ratio is favorable, while a high one is unfavorable.
The implication of a high expenses ratio is that only a relatively small percentage
share of sales is available for meeting financial liabilities like interest, taxes, and
dividends and so on and vice-versa. However, this ratio should be used cautiously
as it is affected by a number of factors such as external uncontrollable factors,
internal factors, employee‘s and managerial efficiency (or inefficiency), all of which
are difficult to analyze.
In case of PGFI, it is in a very good position and showed higher profitability and
greater managerial efficiency.
Return on Capital Ratios is the ratios which deal with the returns to the investors and
the ratios which show that whether the firm is worthy to invest in. Accordingly these
ratios are classified into the following two groups as follows:-

(a) Return to Investor‘s Ratio

The Profitability Ratios can be computed by relating the profits of the firm to its
investments. Such ratios are known as Return to Investor‘s Ratio. There are two
different concepts of investments in vogue in financial literature: capital employed
and proprietors‘ fund. Based on these concepts there are the following two ratios

 Return on Capital Employed

This is the ratio of Net Profit (after Tax) to Capital Employed in the business. It
shows whether the amount of capital employed has been effectively used or not. It is
an index to the operational efficiency of the business as well as an indicator of
profitability. Therefore, the higher the ratio, the more efficient use of the capital
employed, the better is the managerial efficiency and profitability. There are various
formulae for computation of this ratio. We are using the following formula due to
availability of data:-

Return on Capital Employed = Net Profit (after Tax) / Capital Employed * 100

Thus according to the data available the Return on Capital Employed of PGFI is
Net Profit after tax = 2361.74 (Rs. in millions)
Capital Employed = (1538.28 + 665.13) = 2203.41 (Rs. in millions)
Return on capital employed = (2361.74 / 2203.41)*100 = 107.18%

Significance and Interpretation:

Practically, the true test of efficiency is measured by this ratio and that is why it is the
most significant ratio among all ratios. It measures overall efficiency of the firm and
evaluates the performance of various parts of the firm. The shareholders are
interested in this ratio since their return on their investments depends on it. Naturally,
a high return will satisfy them and at the same time it will maximize the market value
of shares. The outsiders like creditors, bankers, financial institutions, etc. are also
interested in this ratio since they may decide whether fresh loans will be extended or
not. Moreover, it helps the management to take further course of action for
promotion, extension and further development.

In case of PGFI, it is very high which is an extremely good sign for the firm as per its
overall performance is concerned.

 Return on Proprietor‘s Fund

It is the ratio of Net Profit (after Tax) to Proprietor‘s Fund in the business. It reveals
the rate of the earning capacity of the business. That is why it is alternatively known
as Earning Ratio. It also indicates whether the proprietors‘ fund has been properly
utilized or not. It is calculated by the following formula:-

Return on Proprietor‘s Fund = Net Profit (after Tax) / Proprietor‘s Fund * 100

Thus according to the data available the Return on Proprietor‘s Fund of PGFI is
Net Profit after tax = 2361.74 (Rs. in millions)
Proprietor‘s Fund (Equity Share Capital + Reserves and Surplus) = 10136.59 (Rs. in
Return on Proprietor‘s Fund = (2361.74 / 10136.59)*100 = 23.29% = 23.3%

Significance and Interpretation:

This ratio measures the amount of earnings for each rupee that the proprietors have
invested in the company. Thus, higher the ratio, the greater will be the return to the
owners and better the profitability. In fact, this ratio is one of the most important
relationships in financial analysis. The earning of a satisfactory return is the most
desirable objective of a business. This ratio indicates the extent to which the
objective has been accomplished. Thus, it is of a great interest to the present as well
as the prospective shareholders and also of great concern to the management, who
has the responsibility of maximizing shareholder‘s wealth.
In case of PGFI, the ratio is a good sign for the company. The management must
ensure that this ratio do not fall much below the average. Or else, the proprietors
may reduce their investment in the firm and that will affect the profitability as wee as
result in capital shortage.

(b) Investment Ratios

The investors and financial managers appraise the performance of companies in
terms of share prices and yields. Although the earnings efficiency is a very important
indicator of a company‘s overall performance, it has to be related to its prices. The
important Investment Ratios are as under:-

 Earnings Per Share (EPS)

EPS measures the profit available to the equity shareholders on a per share basis,
that is, the amount that they can get on every share held. It is calculated by dividing
the profits available to the equity shareholders by the number of shares. Thus,

Earnings per Share (EPS) =

Net Profit available to Equity Shareholders / Number of Equity Shares

Thus according to the data available the Earning per share of PGFI is
Net Profit available to Equity Shareholders = 2361.74 (Rs. in millions) [annexure
Number of Equity Shares = 3315584 [annexure 3(2)]
Earnings per share = = 2361.74 / 3315584 = Rs. 712.31

Significance and Interpretation:

It is a measure to which both the management and shareholders pay a great deal of
attention since the results for an accounting period is expressed in expressed as
EPS. This ratio is significant only for the equity shareholders and is used as a basis
for predicting the future values of equity shares, since it is generally acknowledged
that the market value of ordinary shares is closely related to the EPS. Since the
number of equity shares is the denominator, its value is related to the number of
shares. The use of debt financing or trading on equity makes the EPS much more
volatile. When the ROI exceeds the debt servicing costs, debt financing has a
favorable impact on the ROI and vice-versa. The decline in EPS should be of
concern to investors when they seek to make best allocation of the investment fund.

 Dividend Per Share (DPS)

It is the net distributed profit belonging to the shareholders, divided by the number of
shares. In other words, it reveals the amount of dividend paid to the ordinary
shareholders on a per share basis. Thus,

Dividend per Share (DPS) = Dividend paid to ordinary Shareholders / Number of

Ordinary Shares

Thus according to the data available the Dividend per share of PGFI is:-
Dividend paid to ordinary Shareholders = 182.36 (Rs. in millions) [annexure 2(25)]
Number of Ordinary Shares = 3315584
Dividend per Share (DPS) = 182.36 / 3315584 = Rs. 550.00

Significance and Interpretation:

The net profits after tax belong to shareholders. But, the income which they really
receive is the amount of earnings distributed as cash dividends. Therefore, a large
number of present and potential investors may be interested in DPS, rather than in

 Dividend Pay-out Ratio

It defines the relationship between the returns belonging to the ordinary shareholders
and the dividend paid to them, or, the percentage share of net profit paid to ordinary
shareholders as dividend. It is calculated as under:-

Dividend Pay-out Ratio = Earnings per Share (EPS) / Dividend per Share (DPS) *

Thus according to the data available the Dividend payout ratio of PGFI is:-
Earnings per share = Rs. 712.31
Dividend per Share (DPS) = Rs. 550.00
Dividend Pay-out Ratio = (712.31 / 550.00) * 100 =129.51%

Significance and Interpretation:

In general, if the firm is paying low dividends it is resorting to high retentions to take
care of the growth factor. Low dividends may affect the price of the shares of the
firm. On the other hand, a high pay-out ratio may lead to a rise in the market price of
the shares but it affects the future financing programm from internal sources. The
firms need to strike a balance between the dividend and retention policies based on
a number of considerations from the point of view of both the shareholders and the

In case of PGFI, we find that the firm‘s pay-out ratio is more than 100 %. This implies
that PGFI is resorting to retention policies.
CH12: Recommendations and


1. In the accounting system there is still provision for Daily Deposit Scheme
(DDS) which is not required because this scheme is obsolete. So this
provision should be removed from the system.

2. The new businesses were not conducted now a days as per the decision of
the management but accounting procedure is still there in system which is not
required and can be removed.

3. Provision should be maid in the accounting system so that the profit and lose
can be find out in a branch level. Which will help to control the activities of a
branch .

4. PGFI has a strong liquidity position as per its current ratio is concerned. But
current ratio alone cannot be accepted as an indicator of a firm‘s liquidity
because there are some snags in it, e.g., the components of current assets
and current liabilities may be window-dressed or lack of common standard,
etc. But it does not mean that it is of no use. Besides, some of the limitations
may be overcome by proper action. This ratio has to be backed by a high
liquid ratio. In other words, if the volume of inventories is higher than the other
liquid component of current assets, the liquidity position will no doubt suffer
and, in that case, the firm may face difficulties in paying its current liabilities
even if there is a ‗high‘ current ratio.

5. In order to improve its liquidity position, as per proprietary ratio is concerned,

it should reduce its dependence on outsiders and depend more on share
holders‘ fund in procuring the assets of the business.
6. In order to improve its liquidity position, as per the debt-equity ratio is
concerned, it should reduce its dependence on outsiders and depend more on
share holders‘ fund in procuring the assets of the business.

7. In the long run, the firm must look to improve the Net Working Capital
Turnover Ratio by proper Working Capital management for a better turnover

8. Since Capital Turnover Ratio is low, in the long run, the firm must look to
improve this ratio by proper measures for a better turnover position.

9. The management must ensure that t Return on Proprietor‘s Fund do not fall
much. Or else, the proprietors may reduce their investment in the firm and
that will affect the profitability as wee as result in capital shortage.

10. In order to attract prospective investors and to gain the confidence of the
existing investors of the company, the management must try to increase the
Earnings per share and Dividend per share over the years mainly by
increasing the profit and reducing the fluctuations, if any.

To the best of my ability I have tried to purview the financial statements of The

Peerless General Finance & Investment Co Ltd. In this entire episode I have tried to

gather all relevant and current datas from the published statements and the officials

of the company and tried to understand the functioning of a company of the NBFC

sector in details. After collection and collation of all the relevant facts and figures

taken from the company and on the basis of my knowledge and judgment, I have

tried to analyze the liquidity, solvency, managerial efficiency and finally the

profitability position of the company and have given some recommendations which I

think can provide some help to the management of the company in formulating a

better corporate plan and carry out the operations of the company more effectively

and efficiently.

The project has been subject to the following limitations:

 The duration of the project was limited.

 The study was fully carried out on secondary data, no primary data was


 Other than conceptual profile, other materials are collected from Internet,

which are mostly not recent write-ups.

 All the tools of ratio analysis could not be applied to judge the financial

performance, only a few are applied.

 Financial data were not available for more then one accounting year so

comparative study is not possible.



1. The Peerless General Finance & Investment Company Limited, Annual Report &
Accounts 2009-2010.

2. Financial Management – Shahsi K. Gupta, R.K. Sharma, Neeti Gupta (Kalyani