201.05 Accounting For Banks and Financial Institutions (IAS-1)

Special Class note for
CMA Professional Level –II

201-Advanced Financial Accounting-I
CMA
Professional Level –II
Accounting for Banks and financial institutions (IAS-1)
-Bank companies Act, 1991 & 2003;
Special 201.05 Accounting -Non-bank Financial Institutions Act, 1993;
Class-4 for Banks and financial -Designing a system of accounting for a Bank,
(3 hours) institutions (IAS-1) -full particulars of book debts,
-prescribed forms of profit and loss Account and Balance Sheet,
-statutory requirements and limitations;
-preparation of financial statements of banks and non-bank financial institutions
and compliance of disclosure requirements.
Banks
Generally by the word “Bank” we can easily understand that the financial institutions deal with money. But there are
different types of banks like; Central Banks, Commercial Banks, Savings Banks, Investment Banks, industrial Banks,
Cooperative Banks etc.
Banks in Bangladesh are primarily of two types:

• Scheduled Banks: The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003)
are termed as Scheduled Banks.
• Non-Scheduled Banks: The banks which are established for special and definite objective and operate under the
acts that are enacted for meeting up those objectives, are termed as Non-Scheduled Banks. These banks cannot
perform all functions of scheduled banks.
There are 56 scheduled banks in Bangladesh who operate under full control and supervision of Bangladesh Bank which is
empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. Scheduled Banks are classified
into following types:
• State Owned Commercial Banks (SOCBs): There are 4 SOCBs which are fully or majorly owned by the
Government of Bangladesh.
• Specialized Banks (SDBs): 4 specialized banks are now operating which were established for specific objectives
like agricultural or industrial development. These banks are also fully or majorly owned by the Government of
Bangladesh.
• Private Commercial Banks (PCBs): There are 39 private commercial banks which are majorly owned by the
private entities. PCBs can be categorized into two groups:
• Conventional PCBs: 31 conventional PCBs are now operating in the industry. They perform the banking
functions in conventional fashion i.e interest based operations.
• Islami Shariah based PCBs: There are 8 Islami Shariah based PCBs in Bangladesh and they execute banking
activities according to Islami Shariah based principles i.e. Profit-Loss Sharing (PLS) mode.
• Foreign Commercial Banks (FCBs): 9 FCBs are operating in Bangladesh as the branches of the banks which are
incorporated in abroad.
There are now 4 non-scheduled banks in Bangladesh which are:
• Ansar VDP Unnayan Bank,
• Karmashangosthan Bank,
• Probashi Kollyan Bank,
• Jubilee Bank
Bangladesh Bank regulates and supervises the activities of all banks.
Business of Banking Companies:
(1) In addition to the business of banking, a banking company may engage in all or any of the following forms of
business, namely:-
58
Md.Monowar Hossain FCMA,FCPA,ACS,ACA Monday, June 16, 2014
Audit Consultant (General Manager),
Rupali Bank Ltd.
o The borrowing, raising or taking up of money;

o The lending or advancing of money either upon or without security;
o The drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange,
o The granting and issuing of letters of credit, traveler’s checks, and circular notes;
o The buying, selling and dealing in gold and silver coins and coins of other metals;
o The buying and selling of foreign exchange including foreign bank notes;
o The negotiating of loans and advances;
o The acquiring, holding, issuing on commission, underwriting and dealing in stocks,
o The purchasing and selling of bonds, scrips or other forms of securities
o The receiving of all kinds of bonds or other valuables on deposit or for safe custody or otherwise;
o Providing vaults for the safety of the deposits
o The collecting and transmitting of money against securities;
o Acting as agents for the Government, local authorities or any other person;
o Contracting for public and private loans and negotiating and issuing the same;
o The carrying on and transacting of every kind of guarantee and indemnity business;
o Doing all such other things as are incidental or conducive to the promotion or advancement of the business of the
company;
(2) No banking company shall engage in any form of business other than those referred to in subsection (1).
Non Bank Financial Institutions (FIs)

Non Bank Financial Institutions (FIs) are those types of financial institutions which are regulated under Financial
Institution Act, 1993 and controlled by Bangladesh Bank. Now, 31 FIs are operating in Bangladesh while the maiden one
was established in 1981. Out of the total, 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were initiated by
private domestic initiative and 15 were initiated by joint venture initiative.
Major sources of funds of FIs are Term Deposit (at least six months tenure), Credit Facility from Banks and other FIs, Call
Money as well as Bond and Securitization.
The major difference between banks and FIs are as follows:

• FIs cannot issue cheques, pay-orders or demand drafts.
• FIs cannot receive demand deposits,
• FIs cannot be involved in foreign exchange financing,
• FIs can conduct their business operations with diversified financing modes like syndicated financing, bridge
financing, lease financing, securitization instruments, private placement of equity etc.
Bank companies Act, 1991 & 2003;

Non-bank Financial Institutions Act, 1993;
Designing a system of accounting for a Bank,
full particulars of book debts,
prescribed forms of profit and loss Account and Balance Sheet,
statutory requirements and limitations;
Statutory Reserve : @20% of profit before tax (u/s 24 of the Bank Companies Act, 1991)
Reserve should be continue till total paid-up capital plus premium would be equal
as Statutory Reserve.
General Reserve : BOD
Revaluation surplus : DOS Circular no. 05, dated 26 May 2008
Off Balance Sheet items : BRPD circular no. 08 of 7 August 2007 and 10 of 18 September 2007
Cash Reserve Equipment (CRR) : 6% of average demand and time liabilities

(u/s 33 of the Bank Companies Act -1991) All scheduled banks are required to
maintain as CRR of minimum 5.5% on daily basis ….
59
Rupali Bank Ltd.
Statutory Liquidity Ratio (SLR) : 19% of average demand and time liabilities
(u/s 33 of the Bank Companies Act -1991)
Guidelines of Core Risk Management Issued by Bangladesh Bank vide BRPD Circular # 17 dated 07-October-2003
Regulatory & legal compliance
a) The Bank Companies Act, 1991
b) The Companies Act, 1994
c) Rules & regulations issued by Bangladesh Bank
d) Securities & Exchange Rules, 1987
e) Securities & Exchange Ordinance, 1969
f) Securities & Exchange Act, 1993
g) IPO Rules, 1998
h) The Income Tax Ordinance, 1984
i) VAT Act, 1991
Core Risk of a Bank:
I. Credit risk
II. Foreign exchange risk
III. Asset-liability management risk
IV. Prevention of money laundering risk
V. Internal control and compliance risk
VI. Information and communication technology risk
VII. Environmental risk
Corporate governance:
Bangladesh Bank: (BRPD circular no. 16 dated 24.07.2003 & BRPD circular no. 06 dated 04.02.2012)
Bangladesh Securities and Exchange Commission (BSEC):
Corporate governance is the system by which companies are directed and controlled. It involves a set of relationships
between a company’s management, its board, its shareholders and other stakeholders. It deals with prevention or
mitigation of the conflict of interest of stakeholders. Ways of mitigating or preventing these conflicts of interests include
the processes, customs, policies, laws, and institutions which have impact on the way a company is controlled. An
important theme of corporate governance is the nature and extent of accountability of people in the business, and
mechanisms that decrease the principal-agent problem. Corporate governance also includes the relationships among the
many stakeholders involved and the goals for which the corporation is governed. The principles of corporate governance
include rights and equitable treatment of shareholders, interests of other stakeholders, role and responsibilities of the
board, integrity and ethical behavior and disclosure and transparency of a company.
preparation of financial statements of banks and non-bank financial institutions and compliance of disclosure
requirements.
Loans, advances and provisions: (BRPD Circular no. 07/2012) also [ 14/2012, 19/2012, 5/2013]
Short- Consumer financing
All
term Other Loan to
SMEF other
Particulars Agri. than HP, HP LP BHs/SDs
Credit
Credit LP
Un- Standard 5% 5% 2% 2% 0.25% 2% 1%
classified SMA (Special Monthly Account) - 5% 5% 5% 5% 5% 5%
SS (Substandard) 5% 20% 20% 20% 20% 20% 20%
Classified DF (Doubtful) 5% 50% 50% 50% 50% 50% 50%
B/L ( Bad / Loss) 100% 100% 100% 100% 100% 100% 100%
LP – Loans for professionals to set up business
60
Rupali Bank Ltd.
Basel-II
A set of banking regulations put forth by the Basel Committee on Bank Supervision, which regulates finance and banking
internationally. Basel II attempts to integrate Basel capital standards with national regulations, by setting the minimum
capital requirements
ments of financial institutions with the goal of ensuring institution liquidity.
Marinating Adequate Capital (Basel-II)
II) [Demo]
Taka in Crore
31 Dec 2013
A. Eligible Capital
1 Tier-1 (Core Capital) 780.48
2 Tier-2 (Supplementary Capital) 343.16
3 Tier-3 (eligible for market risk) -
4 Total Eligible Capital (1+2+3) 1,123.64
B. Total Risk Weighted Assets (RWA) 11,114.59
C. Capital Adequacy Ratio (CAB) = 10.11%
D. Core Capital to RWA = 7.02%
E. Supplementary Capital to RWA = 3.09%
F. Minimum Capital Requirement (10% of RWA) 1,111.46

G. Capital Surplus (A4-F) 12.18
Taka in Crore
31 Dec 2013
Eligible Capital
1 Tier-1 (Core Capital)
Fully paid-up capital 227.50
Statutory Reserve 228.99
General Reserve 151.33
Share Money Deposit 7.50
Retained Earnings 165.16
780.48
2 Tier-22 (Supplemenentary Capital)
General Provision (UC+SMA+Off Balance Sheet Exposure) 127.80
Assets Revaluation Reserve 192.55
Revaluation Reserve for Securities up to 50% (HFT) -
Revaluation Reserve for shares up to 10% 22.78
343.13
3 Tier-33 (eligible for market risk)
Short-term
term subordinated debt -
-
4 Total supplementary Capital (2+3) 343.13
5 Total Eligible Capital (1+4) 1,123.61

61
Rupali Bank Ltd.
ABC BANK LIMITED

CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2013
Amount in Taka
Note 31-Dec-13 31-Dec-12
PROPERTY AND ASSETS
Cash 03.00 8,522,613,338 6,770,218,585
Cash in Hand (including foreign currencies) 2,055,238,090 1,550,160,241
Balance with Bangladesh Bank and its
agent Bank(s) (including foreign currencies) 6,467,375,248 5,220,058,344
Balance with other Banks and
financial institutions 04.00 693,726,068 5,366,014,413
In Bangladesh 37,458,892 4,976,518,084
Outside Bangladesh 656,267,176 389,496,329
Money at call and short notice 05.00 200,000,000 -
Investments 06.00 41,998,232,796 22,894,749,808

Government 41,837,372,042 22,735,889,054
Others 160,860,754 158,860,754
Loans and Advances 07.00 61,328,563,493 54,010,287,476

Loans, cash credits, over drafts etc. 56,568,567,232 49,384,251,667
Bills purchased and discounted 4,759,996,261 4,626,035,809
Fixed assets including land, building
furniture and fixtures 08.00 2,843,356,991 2,762,228,892
Other Assets 09.a 8,030,328,459 5,421,655,838
Non Banking Assets 09.b 76,975,748 93,580,592
Total Assets 123,693,796,893 97,318,735,604
LIABILITIES AND CAPITAL

Liabilities
Borrowings from other Banks,
Financial Institutions and Agents 10.00 9,669,428,603 7,229,331,894
Deposits and other accounts 11.a 93,541,400,358 72,045,791,328

Current and other accounts etc. 32,505,531,569 24,704,157,771
Bills payable 1,918,087,695 1,842,478,227
Saving bank deposits 23,906,373,171 24,033,793,494
Fixed deposits 33,686,926,205 19,862,495,652
Other deposits 1,524,481,718 1,602,866,184
Other liabilities 12.a 10,673,418,743 8,404,965,790
Total Liabilities 113,884,247,704 87,680,089,012
62
Rupali Bank Ltd.
Capital/Share Holders' Equity

Paid up capital 13.02 3,306,449,088 2,875,173,120
Statutory reserve 14 3,330,837,039 2,980,837,039
Other reserves 15 2,262,442,592 2,735,908,947
Surplus in profit and loss account 16.a 909,813,710 1,046,721,209
Total equity attributable to equity holders of the company 9,809,542,429 9,638,640,315
Non Controlling interest 6,760 6,277
Total Liabilities and Share Holders' Equity 123,693,796,893 97,318,735,604
…...Continued Amount in Taka
OFF BALANCE SHEET ITEMS
Contingent Liabilities 17.00 12,005,317,556 9,860,040,453

Acceptances & endorsements - -
Letter of guarantees 17.01 1,878,630,762 1,806,640,538
Irrevocable letter of credit 17.02 6,063,570,963 5,451,357,766
Bills for collection 17.03 336,873,471 -
Other contingent liabilities 17.04 3,726,242,360 2,602,042,149
Documentary credits and short term

trade related transactions - -
Forward assets purchased and forward
deposits placed - -
Undrawn note issuance and revolving
underwriting facilities - -
Undrawn formal standby facilities,
credit lines and other commitments - -
Liabilities against forward purchase & sale
Litigation filed by the Bank - -
Total Other Commitments - -
Total Off-Balance Sheet Items

Including Contingent Liabilities 12,005,317,556 9,860,040,453
Accompanying notes 1 to 41 form an integral part of these financial statements.
63
Rupali Bank Ltd.
ABC BANK LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2013
Amount in Taka
Note 31-Dec-13 31-Dec-12
OPERATING INCOME
Interest Income 18.01 8,209,924,355 6,604,198,304
Interest paid on deposits, borrowings etc. 19.a 6,469,409,213 4,138,754,861
Net Interest Income 1,740,515,142 2,465,443,443
Income from Investment 20.00 3,716,097,423 2,204,265,402
Commission,Exchange and Brokerage 21.00 942,848,379 987,134,228
Other Operating Income 22.a 804,256,981 871,586,875
Total operating income 7,203,717,925 6,528,429,948
OPERATING EXPENSES
Salary and allowances 23.00 2,358,396,133 2,200,353,628
Rent, taxes,insurance,electricity etc. 24.00 274,419,908 246,142,347
Legal expenses 25.00 11,497,601 10,571,793
Postage,stamp,telecommunication etc. 26.00 48,680,579 40,064,254
Stationery,printing,advertisements etc. 27.00 92,438,687 79,178,405
Managing Director's salary & allowances and fees 28.00 9,782,200 10,627,301
Directors' fees 29.a 2,323,000 2,684,000
Auditors' fees 30.a 510,000 510,000
Charges on Loan losses account 135,020,994 86,643,022
Repair, maintenance and depreciation
of Bank's property 31.00 166,540,875 157,564,629
Other expenses 32.a 829,876,029 536,375,080
Total operating expenses 3,929,486,006 3,370,714,459
Profit before provision 3,274,231,919 3,157,715,489

Provision 725,000,000 150,000,000
Provision for loans & advances & off balance sheet exposures 33.00 720,000,000 150,000,000
Provision for others 34.00 - -
Transfer to benevolent fund 5,000,000 -
Profit before tax 2,549,231,919 3,007,715,489

Provision for Taxation 1,304,828,344 1,352,765,952
Current tax 1,304,539,662 1,317,621,521
Deferred tax 288,682 35,144,431
Profit after taxation 1,244,403,575 1,654,949,537

Non Controlling Interest (483) (277)
Profit after taxation -without Non Controlling Interest 1,244,403,092 1,654,949,260
Retained earning brought forward 16.a.1 15,410,618 1,771,949
Profit available for appropriation 1,259,813,710 1,656,721,209
Appropriation 350,000,000 610,000,000
Statutory reserve 350,000,000 610,000,000
General reserve - -
Retained surplus 16.a 909,813,710 1,046,721,209

Earning per share (EPS) 39.a 3.76 5.01
64
Rupali Bank Ltd.
CONSOLIDATED CASH FLOW STATEMENT

31-Dec-13 31-Dec-11
A. Cash flows from operating activities
Interest receipts in cash 11,490,111,768 8,742,569,893
Interest payments (6,469,409,213) (4,138,754,861)
Dividend receipts 14,020,820 6,591,246
Fees, commission & exchange receipts in cash 942,848,379 987,134,228
Recoveries of loans previously written off 412,400,000 523,497,701
Cash payments to employees (2,368,178,333) (2,210,980,929)
Cash payments to suppliers (118,793,430) (88,901,757)
Income tax paid (1,354,960,437) (1,004,142,796)
Receipts from other operating activities 391,856,981 348,089,174
Payments for other operating activities 35.a (1,325,566,414) (917,518,280)
Cash generated from operating activities before changes 1,614,330,121 2,247,583,619
in operating assets and liabilities
Increase/(decrease) in operating assets and liabilities 10,913,192,259 12,681,494,319
Statutory deposits - -
Purchase/sale of trading securities (4,433,230,295) 5,002,090,004
Loans and advances to other banks (200,000,000) -
Loans and advances to customers ( other than Banks) (7,318,276,017) (5,337,600,349)
Other assets 36.a (3,361,414,718) (1,456,423,031)
Deposits from other Banks/borrowings 175,257,838 70,593,484
Deposits from customers (other than Banks) 21,320,351,192 6,207,166,897
Other liabilities on account of customers 2,336,480 932,032
Other liabilites 37.a 4,728,167,779 8,194,735,282
Net Cash received / (used) from operating activities 12,527,522,380 14,929,077,938

B. Cash flows from investing activities
Proceeds from sale / payments for purchase of securities (14,670,252,693) (9,305,711,954)
Purchase of property, plants and equipments (204,828,382) (81,170,869)
Sale of property, plants and equipments 2,699,726 6,385,351
Purchase/sale/Adjustment of subsidiary - -
Net Cash received / (used) in investing Activities (14,872,381,349) (9,380,497,472)
C. Cash flows from financing activities
Receipts from issue of loan capital and debt securities - -
Payment for redemptions of loan capital and debt securities - -
Receipts from issue of ordinary share - -
Dividend paid (575,034,623) (479,195,520)
Net cash received / (used) from financing activities (575,034,623) (479,195,520)
D. Net (Increase) /decrease in cash & cash equivalents (A+B+C) (2,919,893,592) 5,069,384,946
E. Effects of exchange rate changes on cash and cash-equivalents - -
F. Opening cash and cash equivalents 12,136,232,998 7,066,848,052
G. Closing cash and cash-equivalents (D+E+F) 38.00 9,216,339,406 12,136,232,998
Cash and cash equivalents at end of the year
Cash in hand (including foreign currencies ) 2,055,238,090 1,550,160,241
Bal. with Bangladesh Bank & its agent Banks (including foreign currencies) 6,467,375,248 5,220,058,344
Balance with other banks and financial institutions (note-04 ) 693,726,068 5,366,014,413
9,216,339,406 12,136,232,998
H. Net operating cash flow per share 37.89 45.15
65
Rupali Bank Ltd.
ABC BANK LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Amount in
Taka
Particulars Paid up Statutory Other Retained Total
Capital Reserve Reserves Earnings
Balance as at 01 January
2,875,173,120 2,980,837,039 2,735,908,947 1,046,721,209 9,638,640,315
2013
Transfer to general
- - 20,000,000 (20,000,000) -
reserve
Cash Dividend 2011 - - - (575,034,623) (575,034,623)
Issuance of bonus share

431,275,968 - - (431,275,968) -
- 2012
Transfer to benevolent
- - - (5,000,000) (5,000,000)
fund
Restated openning
3,306,449,088 2,980,837,039 2,755,908,947 15,410,618 9,058,605,692
balance
Exchange equalization
- - - - -
fund
Revaluation of Fixed
- - - - -
Assets
Transferred from
Deferred Tax liability to - - 287,929,276 - 287,929,276
asset revaluation reserve
Revaluation Reserve
- - (781,395,631) - (781,395,631)
Govt. Securities
Net profit for the year - - - 1,244,403,092 1,244,403,092
Appropriations during
- - - - -
the year
Transfer to statutory
- 350,000,000 - (350,000,000) -
reserve
Balance as at 31
3,306,449,088 3,330,837,039 2,262,442,592 909,813,710 9,809,542,429
December 2013
Balance as at 31
2,875,173,120 2,980,837,039 2,735,908,947 1,046,721,209 9,638,640,315
December 2012
Accompanying notes 1 to 41 form an integral part of these financial statements
66
Rupali Bank Ltd.
ABC BANK LIMITED

Highlights on the overall activities of the Bank for the year ended 2013 and 2012
Sl. Particulars 2013 2012 Change in

No. Taka Taka %
1 Paid-up-Capital 3,306,449,088 2,875,173,120 15
2 Total Capital (Teir -I+II) 9,300,594,902 9,117,416,771 2
3 Capital surplus/(Deficit) 1,781,934,902 2,251,816,771 -21
4 Total Assets 123,790,627,973 97,417,927,797 27
5 Total Deposits 93,658,586,510 72,152,375,394 30
6 Total Loans & Advances 61,328,563,493 54,010,287,476 14
7 Total Contingent Liabilities 12,005,317,556 9,860,040,453 22
8 Advance/ Deposit Ratio 0.65:1 0.75:1 12
Percentage of Classified Loans
9
against total Loans & Advances 8.39% 5.22% 61
10 Profit after tax & provision 1,236,356,336 1,650,339,616 -25
Amount of classified loan during
11 3,393,000,000 814,914,000
current year 316
Provision kept against classified
12 1,803,533,437 1,091,983,437
loans 65
13 Provision surplus /(deficit) 62,648,745 29,533,837 112
14 Cost of Fund (%) 7.23% 6.32% 14
15 Interest earning Assets 98,677,618,328 79,811,603,347 24
16 Non-interest earning Assets 25,113,009,645 17,606,324,450 43
17 Return on Investment (ROI) % 8.85% 9.63% -8
18 Return on Assets (ROA)% 1.00% 1.69% -41
19 Income from Investment 3,716,097,423 2,204,265,402 69
20 Earning per Share 3.74 4.99 -25
Consolidated Earning per Share
21 3.76 5.01
(SPS) -25
22 Market value per share 38.10 77.80 -51
23 Price Earning Ratio (Times) 10.19 15.59 -35
24 Net Assets value per share 29.63 29.13 2
67
Rupali Bank Ltd.
CAMELS Rating
The six factors examined are as follows:
C - Capital adequacy
A - Asset quality Bank supervisory authorities assign each bank a score on a scale of one
M - Management quality (best) to five (worst) for each factor. If a bank has an average score
E - Earnings less than two it is considered to be a high-quality institution, while
L - Liquidity banks with scores greater than three are considered to be less-than-
S - Sensitivity to Market Risk satisfactory establishments. The system helps the supervisory authority
identify banks that are in need of attention.
Problem No.15 [Deferred tax ]

FYR Ltd. presents the following information for the year ending 30.06.2013 and 30.06.2014
30.06.2013 30.06.2014
Tk. (lakhs) Tk. (lakhs)
Depreciation as per books 4,010.10 4,023.54
Unabsorbed carry forward business loss and depreciation allowance 2,016.60 4,110.00
Disallowed as per ITO-1984 518.35 611.45
Deferred Revenue Expenses 4.88 -
Provision for Doubtful Debts 282.51 294.35
Tax Rate 30% 30%
Additional information: FYR Ltd. had incurred a loss of Tk. 504 lakhs for the year ending 30.06.2014 before providing for
Current Tax of Tk. 26 lakhs.
Required: Deferred Tax Asset/Liability and state how the same should be dealt with as per IAS-12: Income Taxes.
Solution of problem no.15 [Deferred tax ]

FYR Ltd.
Deferred Tax Calculation
30.06.2013 30.06.2014
Tk. (lakhs) Tk. (lakhs)
Carry forward business loss and depreciation allowance 2,016.60 4,110.00
Add: Disallowed as per ITO-1984 518.35 611.45
Provision for Doubtful Debts 282.51 294.35
2,817.46 5,015.80
Less: Depreciation (4,010.10) (4,023.54)
(1,192.64) 992.26
Less: Deferred Revenue Expenditure (4.88) -
Timing Differences (1,197.52) 992.26
Deferred Tax Liability[(1,197.52) x @30% ] 359.26 -
Deferred Tax Asset [ 992.26 x @30%] - 297.68

Where an enterprise has unabsorbed depreciation or carry forward of losses under income tax laws, deferred tax assets
should be recognized only to the extent that there is virtual certainty supported by convincing evidence that future
taxable income will be available against which such deferred tax assets can be realized. The existence of unabsorbed
depreciation or carry forward of losses is strong evidence that future taxable income may not be available.
Deferred Tax Asset of Tk. 297.68 lakhs should not be recognized as an asset as per para-17 of IAS-12.
Deferred Tax Liability of Tk. 359.26 lakhs should be disclosed under a separate heading in the balance sheet of FYR Ltd.,
separately from current assets and current liabilities.
68
Rupali Bank Ltd.
Problem No.16 [Accounting for Banks ]
Following are the statements of interest on advances in respect of performing and non-performing assets of M3 Bank Ltd.
th
Find out the income to be recognised for the year ended 30 June, 2014.
(Tk.. in lakhs)
Performing Assets Interest Interest
earned received
Cash credit and overdrafts ……………………………………… 1,800 1,060
Term loans ……………………………………………………………. 480 320
Bills purchased and discounted …………………………….. 700 550
Non-performing Assets
Cash credit and overdrafts ………………………………….. 450 70
Term loan ………………………………………………………….. 300 40
Bills purchased and discounted ………………………… 350 36
Solution of problem no.16 [Accounting for Banks ]
Interest on Performing Assets should be recognised on accrual basis, but interest on Non-performing Assets should be
recognised on cash/realisation basis.
Tk.. in lakhs
Interest on cash credit and overdrafts (1,800 + 70) = 1,870
Interest on term loan (480 + 40) = 520
Interest on bills purchased and discounted (700 + 36) = 736
Total income to be recognised 3,126
th
From the following information, prepare a Balance Sheet of MMH International Bank Ltd. as on 30 June, 2014 giving the
relevant schedules and calculate cash reserves required and statutory liquid reserves required.
Tk.. in lakhs
Dr. Cr.
Share Capital (19,80,000 Shares of Tk. 10 each) - 198.00
Statutory Reserve - 231.00
Net Profit Before Appropriation - 150.00
Profit and Loss Account - 412.00
Fixed Deposit Account - 517.00
Savings Deposit Account - 450.00
Current Accounts 28.00 520.12
Bills Payable - 0.10
Cash credits 812.10 -
Borrowings from other Banks - 110.00
Cash in Hand 160.15
Cash with Bangladesh Bank 37.88
69
Rupali Bank Ltd.
Cash with other Banks 155.87

Money at Call 210.12
Gold 55.23
Government Securities 110.17
Premises 155.70
Furniture 70.12
Term Loan 792.88
2,588.22 2,588.22
Additional Information :
Bills for collection 18,10,000
Acceptances and endorsements 14,12,000
Claims against the Bank not acknowledged as debt 55,000
Depreciation charges—Premises 1,10,000
Furniture 78,000
• 50% of the Term Loans are secured by Government guarantees.
• 10% of cash credit is unsecured.
Note : Cash reserves required 6% of demand and time liabilities; liquid reserves required 30% of demand and time
liabilities.
MMH International Bank Ltd.
Balance Sheet
th
As on 30 June, 2014
(Tk.. in lacs)
Capital and Liabilities Schedule As on 30.06.2014 As on 30.06.2013
Share Capital 1 1,98.00
Reserves and Surplus 2 7,93.00
Deposits 3 14,87.12
Borrowings 4 1,10.00
Other liabilities and provisions 5 0.10
25,88.12
Assets
Cash and balances with Bangladesh Bank 6 2,49.38
Balances with banks and money
at call and short notice 7 3,14.46
Investments 8 1,65.40
Advances 9 16,32.98
Fixed Assets 10 2,25.82
Other Assets 11 –
25,88.22
Contingent liabilities 12 14.67

Bills for collection 18.10
70
Rupali Bank Ltd.
Schedule 1— Capital
Authorised Capital –
Issued, Subscribed and
Paid up Capital (19,80,000 Shares of Tk. 10 each 1,98.00
Schedule 2— Reserves and Surplus
(1) Statutory Reserve-
Opening balance 2,31.00
Additions during the year 30.00
2,61.00
(2) Balance in Profit & Loss
Account (note-1) 5,32.00
7,93.00
Schedule 3— Deposits
(i) Demand deposits from others 5,20.12
(ii) Saving bank deposits 4,50.00
(iii) Fixed Deposits 5,17.00
14,87.12
Schedule 4— Borrowings
Borrowing in Bangladesh-
Other banks 1,10.00
Schedule 5— Other Liabilities and Provisions
Other liabilities and provisions 0.10
Schedule 6— Cash and balances with Bangladesh Bank

(i) Cash in hand 1,60.15
(ii) Balances with Bangladesh Bank
In current account (Note-2) 89.23
2,49.38
Schedule 7—Balances with banks and money at call and short notice
1. In Bangladesh
(i) Balances with banks
(a) in current accounts (Note- 3) 1,04.52
(ii) Money at call and short notice 2,10.12
3,14.46
Schedule 8— Investments
(1) Investment in Bangladesh in
71
Rupali Bank Ltd.
(i) Government securities 1,10.17

(ii) Others—Gold 55.23
1,65.40
Schedule 9— Advances
A. (i) Cash credits, overdrafts 8,40.10
(ii) Term Loans 7,92.88
16,32.98
B (i) Secured by tangible assets 11,52.53
(ii) Secured by bank/government guarantees 3,96.44
(iii) Unsecured 84.01
16,32.98
Schedule 10— Fixed Assets
1. Premises
th
At cost on 30 June, 2014 156.80
Depreciation to date 1.10
155.70
2.Other Fixed Assets

th
Furniture at cost on 30 June, 2014 70.90
Depreciation to date 0.78
70.12
Total (1 + 2) 2,25.82
Schedule 11— Other Assets

Nil
Schedule 12— Contingent Liabilities
(i) Claims against bank not acknowledged as debts 0.55
(ii) Acceptances, endorsements 14.12
14.67
Calculation of cash reserves and statutory liquid reserves
Total of demand and time liabilities
(Tk. 5,17.00 + Tk. 4,50.00 + Tk. 5,20.12) 14,87.12
Cash reserves (6% of above) 89.23
Statutory liquid reserves
(30% of demand and time liabilities) 4,46.14
Working Note :
(1) Balance in Profit & Loss Account :
Net Profit before appropriation 1,50.00
72
Rupali Bank Ltd.
Add : Profit for the year 4,12.00

5,62.00
Less : Transfer to statutory reserve
(20% of 1,50.000) 30.00
532.00
(2) Transfer from Cash with other banks to Cash with BB
Cash reserve required 89.23
Cash with Bangladesh Bank 37.88
Transfer needed to maintain cash reserve 51.35
(3) Liquid Assets:
Cash on hand 1,60.15
Cash with other Banks 1,55.87
Money at call and short notice 2,10.12
Gold 55.23
Government securities 1,10.17
6,91.54
Excess liquidity (6,91.54 – 4,46.14) 2,45.40
The excess liquidity enables the transfer as per (2) above.
After the transfer, cash with other Banks = Tk. (in lacs) (1,55.87 – 51.35) = Tk. (in lacs) 1,04.52

From the following information calculate the amount of Provisions and Contingencies and prepare Profit and Loss
Account of FYR Bank Ltd. for the year ended 30.06.2014:
(Tk.. in ’000)
Interest and Discount 8,860
(Includes interest accrued on investments)
Other Income 220
Interest expended 2,720
Operating expenses 2,830
Interest accrued on Investments 10
Additional Information:
(a) Rebate on bills discounted to be provided for 30
(b) Classification of Advances:
(i) Standard assets 4,000
(ii) Sub-standard assets 2,240
(iii) Doubtful assets−(fully unsecured) 390
(iv) Doubtful assets – covered fully by security
Less than 1 year 100
More than 1 year, but less than 3 years 600
More than 3 years 600
(v) Loss assets 376
(c) Provide 35% of the profit towards provision for taxation.
(d) Transfer 20% of the profit to Statutory Reserve.
73
Rupali Bank Ltd.

FYR Bank Ltd.
Profit and Loss Account
th
for the year ended 30 June, 2014
(Tk.. in ’000)
Particulars Schedule Year ended on 31st March,
No. 2014
I. Income
Interest earned (Note-1) - 8,830
Other income - 220
Total 9,050
II. Expenditure
Interest expended - 2,720
Operating expenses - 2,830
Provisions and contingencies (Note-4) 2,399
Total 7,949
III. Profit/Loss
Net profit/(loss) for the year 1,101
Profit/(loss) brought forward Nil
Total 1,101
IV. Appropriations
Transfer to statutory reserve @ 20% 220
Balance carried to balance sheet 881
Total 1,101
Working notes:
1. Schedule-Interest earned (Tk..’000)
(i) Interest and discount 8,860
Less: Rebate on bills discounted (30)
Interest accrued on investments (10) 8,820
(ii) Interest accrued on investments 10
8,830
2. Calculation of Provisions and Contingencies

Assets Amount % of Provision Provision
(Tk. in ’000) (Tk. in ’000)
Standard assets 4,000 0.40* 16
Sub-standard assets 2,240 10 224
Doubtful assets (unsecured) 390 100 390
Doubtful assets – covered by
security
Less than 1 year 100 20 20
More than 1 year but less than 600 30 180
3 years
More than 3 years 600 100* 600
Loss assets 376 100 376
Total provision 8,306 1,806
3. Calculation of provision on tax = 35% (Total income – Total expenditure)
= 35% of Tk. [(9,050 – (2,720 + 2,830 + 1,806)]
= 35% of Tk.1,694
= Tk. 593
4. Total provisions and contingencies = Tk. 1,806 + Tk. 593 = Tk.2,399.
74
Rupali Bank Ltd.
* The above solution has been provided based on the latest Non-Performing Loan provisions (as per the Master Circular
th
issued by Bangladesh Bank) though in the above question provisions for the year ended 30 June, 2014 is required.
The following are the figures extracted from the books of M3 Generation Bank Limited as on 30.06.2014:
Tk.
Interest and discount received …………………………………………………… 37,05,738
Interest paid on deposits…………………………………………………………… 20,37,452
Issued and subscribed capital………………………………………………….. 10,00,000
Salaries and allowances………………………………………………………… 2,00,000
Directors fee and allowances……………………………………………….. 30,000
Rent and taxes paid………………………………………………………………… 90,000
Postage and telegrams……………………………………………………………….. 60,286
Statutory reserve fund……………………………………………………………… 8,00,000
Commission, exchange and brokerage…………………………………….. 1,90,000
Rent received…………………………………………………………………………… 65,000
Profit on sale of investments……………………………………………………… 2,00,000
Depreciation on bank’s properties…………………………………………… 30,000
Statutory expenses…………………………………………………………………….. 40,000
Preliminary expenses………………………………………………………………. 25,000
Auditor’s fee…………………………………………………………………………… 5,000
The following further information is given:

(i) A customer to whom a sum of Tk.10 lakhs has been advanced has become insolvent and it is expected only 50%
can be recovered from his estate.
(ii) There were also other debts for which a provision of Tk.1,50,000 was found necessary by the auditors.
(iii) Rebate on bills discounted on 30.06.2013 was Tk.12,000 and on 30.06.2014 was Tk.16,000.
(iv) Provide Tk.6,50,000 for Income-tax.
(v) The directors desire to declare 10% dividend.
Required:
Prepare the Profit and Loss account of M3 Generation Bank Limited for the year ended 30.06.2014 and also show,
how the Profit and Loss account will appear in the Balance Sheet, if the Profit and Loss account opening balance was
Nil as on 30.06.2013.
75
Rupali Bank Ltd.

M3 Generation Bank Limited
Profit and Loss Account for the year ended 30 June, 2014
Schedule Year ended
30.06.2014
(Tk. in ‘000s)
I. Income:
Interest earned 13 3,701.74
Other income 14 455.00
Total 4,156.74
II. Expenditure
Interest expended 15 2,037.45
Operating expenses 16 480.29
Provisions and contingencies (500 + 150 + 650) 1,300.00
Total 3,817.74
IIII. Profits/Losses
Net profit for the year 339.00
Profit brought forward Nil
339.00
IV. Appropriations
Transfer to statutory reserve (25%) 84.75
Proposed dividend 100.00
Balance carried over to balance sheet 154.25
339.00
The Profit & Loss Account balance of Tk.154.25 thousand will appear in the Balance Sheet
under the head ‘Reserves and Surplus’ in Schedule 2.
Year ended
30.06.2014
(Tk. in ‘000)
Schedule 13 – Interest Earned
I. Interest/discount on advances/bills (Refer -note) 3,701.74
3,701.74
76
Rupali Bank Ltd.
Schedule 14 – Other Income

I. Commission, exchange and brokerage 190.00
II. Profit on sale of investments 200.00
III. Rent received 65.00
455.00
Schedule 15 – Interest Expended

I. Interests paid on deposits 2,037.45
2,037.45
Schedule 16 – Operating Expenses

I. Payment to and provisions for employees 200.00
II. Rent, taxes and lighting 90.00
III. Depreciation on bank’s properties 30.00
IV. Director’s fee, allowances and expenses 30.00

V. Auditors’ fee 5.00
VI. Law (statutory) charges 40.00
VII. Postage and telegrams 60.29
VIII. Preliminary expenses 25.00*
480.29
*It is assumed that preliminary expenses have been fully written off during the year.
Working Note:
Interest/discount (net of rebate on bills discounted) 3,705.74

Add: Rebate on bills discounted on 30.06.2013 12.00
Less: Rebate on bills discounted on 30.06.2014 (16.00)
3701.74
77
Rupali Bank Ltd.
th
Following information is furnished to you by FYR Sound Bank Ltd. for the year ended 30 June, 2014:
(Tk.. in thousands)
Interest and discount - (Income) …………………………………………………………………… 8,860
Interest on public deposits – (Expenditure)…………………………………………………… 2,720
Operating expenses………………………………………………………………………………………. 2,662
Other incomes………………………………………………………………………………………………….. 250
Provisions and contingencies (it includes provision in respect of Non-performing
Assets (NPAs) and tax provisions)……………………………………………………………………… 2,004
Rebate on bills discounted to be provided for as on 30.06.2014……………………… 30
Classification of Advances:
Standard Assets …………………………………………………………………………………. 5,000
Sub-standard Assets ……………………………………………………………………….. 1,120
Doubtful Assets – fully unsecured …………………………………………………. 200
Doubtful assets – fully secured ……………………………………………………… -
Less than 1 year ………………………………………………………………………………. 50
More than 1 year but less than 3 years …………………………………………… 300
More than 3 years ………………………………………………………………………….. 300
Loss assets……………………………………………………………………………………… 200
Required:
th
(i) Profit and Loss Account of the Bank for the year ended 30 June, 2014.
(ii) Provision in respect of advances.

FYR Bank Ltd.
Profit and Loss Account
th
for the year ended 30 June, 2014
Schedule No. (Tk.. in
thousands)
Income: Interest and Discount (8,860 – 30) 13 8,830
Other income 14 250
9,080
Expenditure: Interest expenses 15 2,720
Operating expenses 16 2,662
Provision and Contingencies 2,004
7,386
Net Profit/Loss for the year 1,694
78
Rupali Bank Ltd.
Assets Value % of Provision

provision
Standard Assets 5,000 0.40 20.00
Sub-standard Assets 1,120 10 112.00
Doubtful Assets
100% unsecured 200 100 200.00
Secured:
Less than 1 year 50 20 10.00
More than 1 year but less than 3 years 300 30 90.00
More than 3 years 300 100 300.00
Loss Assets 200 100 200.00
Total Provision 932.00
Homework:
12. Question No.4 of CMA Exam:December-2013
13. Question No.3 of CMA Exam:April-2013
79
Rupali Bank Ltd.

201.05 Accounting For Banks and Financial Institutions (IAS-1)

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201.05 Accounting For Banks and Financial Institutions (IAS-1)

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Special Class note for

CMA Professional Level –II

Banks in Bangladesh are primarily of two types:

o The borrowing, raising or taking up of money;

Non Bank Financial Institutions (FIs)

The major difference between banks and FIs are as follows:

Bank companies Act, 1991 & 2003;

Cash Reserve Equipment (CRR) : 6% of average demand and time liabilities

4 Total Eligible Capital (1+2+3) 1,123.64

B. Total Risk Weighted Assets (RWA) 11,114.59

C. Capital Adequacy Ratio (CAB) = 10.11%

D. Core Capital to RWA = 7.02%

E. Supplementary Capital to RWA = 3.09%

F. Minimum Capital Requirement (10% of RWA) 1,111.46

5 Total Eligible Capital (1+4) 1,123.61

ABC BANK LIMITED

Money at call and short notice 05.00 200,000,000 -

Investments 06.00 41,998,232,796 22,894,749,808

Loans and Advances 07.00 61,328,563,493 54,010,287,476

LIABILITIES AND CAPITAL

Deposits and other accounts 11.a 93,541,400,358 72,045,791,328

Capital/Share Holders' Equity

OFF BALANCE SHEET ITEMS

Contingent Liabilities 17.00 12,005,317,556 9,860,040,453

Documentary credits and short term

Total Off-Balance Sheet Items

Accompanying notes 1 to 41 form an integral part of these financial statements.

ABC BANK LIMITED

Profit before provision 3,274,231,919 3,157,715,489

Profit before tax 2,549,231,919 3,007,715,489

Profit after taxation 1,244,403,575 1,654,949,537

Retained surplus 16.a 909,813,710 1,046,721,209

CONSOLIDATED CASH FLOW STATEMENT

Net Cash received / (used) from operating activities 12,527,522,380 14,929,077,938

ABC BANK LIMITED

Issuance of bonus share

Accompanying notes 1 to 41 form an integral part of these financial statements

ABC BANK LIMITED

Sl. Particulars 2013 2012 Change in

Problem No.15 [Deferred tax ]

Solution of problem no.15 [Deferred tax ]

Deferred Tax Liability[(1,197.52) x @30% ] 359.26 -

Deferred Tax Asset [ 992.26 x @30%] - 297.68

Problem No.16 [Accounting for Banks ]

Solution of problem no.16 [Accounting for Banks ]

Problem No.17 [Accounting for Banks ]

Cash with other Banks 155.87

Contingent liabilities 12 14.67

Schedule 5— Other Liabilities and Provisions

Other liabilities and provisions 0.10

Schedule 6— Cash and balances with Bangladesh Bank

(i) Government securities 1,10.17

2.Other Fixed Assets

Schedule 11— Other Assets

Add : Profit for the year 4,12.00

Problem No.18 [Accounting for Banks ]

Solution of problem no.18 [Accounting for Banks ]

2. Calculation of Provisions and Contingencies

Problem No.19 [Accounting for Banks ]

The following further information is given:

Solution of problem no.19 [Accounting for Banks ]

Schedule 14 – Other Income

Schedule 15 – Interest Expended