ACCOUNTING & FINANCE FOR

BANKERS-JAIIB-MODULE D

PRESENTATION BY
S.D.BARGIR
Joint Director-IIBF
 Topics
• Partnership accounts
• Final accounts of banking companies
• Company accounts
• Balance sheet equation
• Accounting in a Computerized
environment
 Partnership Accounts

• Introduction
• Definition
• Partnership deed
In the absence of partnership deed/if
deed is silent
• Profit sharing ratio –Equal
• No interest on capital
• No interest on drawings
• interest@6% on loan given by partner
• No salary /no commission/ no remuneration
• Capital accounts under fluctuating capital
method
 Methods of capital accounts
• Fixed
• Capital account-transactions relating to
capital
• Current account
• Other transactions such as Interest, profit,
goodwill, past profits/losses & adjustments

• Fluctuating
• One account- all transactions
 GOODWILL
• It’s reputation, super profit earning capacity of a
firm
• Necessity
• change in profit sharing ratio
• Admission, retirement, death
• Sale of business
• Methods:
• Average profit
• Super profit
• capitalization of profit
 Methods of goodwill
Average profit Super profit Capitalization of
(AP) (SP) profit
AP x Multiplier SP x multiplier (Capitalised
SP = AP less NP value) less
Actual Capital
NP=normal profit
Multiplier is Multiplier is
given given
GOODWILL IMPORTANT ENTRIES
• ADMISSION
– When goodwill is raised and written off
• Debit goodwill and credit old partners capital a/c
(old ratio)
• Debit All partners capital a/c & credit goodwill (new
ratio)
• RETIREMENT/DEATH
– When goodwill is raised and written off
• Debit goodwill and credit old partners capital a/c
(old ratio)
• Debit Continuing partners capital a/c & credit
goodwill (new ratio)
 …
• ADMISSION
• revaluation of assets/ liabilities, goodwill,
capital adjustments, balance of reserves, past
losses
• RETIREMENT
• As per Act of 1932, retirement by consent,
partnership deed provision, at will by giving
proper notice
• revaluation of assets/ liabilities, goodwill,
capital adjustments, balance of reserves, past
losses
 Joint life policy
Premium treated as Premium treated as Premium treated as
expenses asset reserves
At the end of each Each year difference difference between SV
year, premium w/o to P between surrender and BV is w/o to Jt.
& L A/c value and Book value Policy Reserve A/c
is w/o to P & L A/c

receipt of policy amt. receipt of policy amt. receipt of policy amt.

Amount received is If amount is > SV, the Policy amount credited
credited to partners excess is credited to to partners
partners
 Types of partners
• Active
• Sleeping
• Quasi
• nominal
 FINAL ACCOUNTS OF BANKING
COMPANIES
• Definition
• Requirements –Accounts & audit
– Third Schedule annexed to BRA
– Form A- Balance sheet
– Form B- Profit & Loss Account
– Audit
– Submission of accounts- RBI- within 3 months
– Publication of accounts- within 6 months
– Auditor-prior approval of RBI for appt/removal
 Balance sheet-Form A
Capital & Liabilities Assets
1.Capital 6.Cash & Bank Bal. RBI
2. Reserves & surplus 7.Balances with Banks &
Money at call and SN
3.Deposits 8.Investments
4.Borrowings 9Advances
5 Other Liabilities & Provisions 10.Fixed Assets
11.Other Assets
 Demand deposits
• Credit balances in OD and CC
• Deposits payable at call
• Overdue deposits
• In-operative current accounts
• Matured time deposits
• Matured cash certificates
• Matured certificate of deposits
 Contingent liabilities
Schedule-12
• Claims against bank not acknowledged as debts
• Liability for partly paid shares
• Liability on account of outstanding forward
exchange contracts
• Acceptances ,endorsement & other obligations
• Other items for which bank is contingently
liable.
 PROFIT & LOSS ACCOUNT-
FORM B
Income
Interest Earned Schedule.13
Other Income Schedule.14
Expenditure
Interest Expended Schedule.15
Operating Expenses Schedule.16
Provision for contingencies
Profit /Loss

Appropriations
Transfer to Reserves
Proposed dividend
Balance carried to Balance
sheet
 NOTES TO ACCOUNTS

Significant Schedule.17
Accounting
Policies
Notes forming Schedule.18
part of Accounts
 Other Income
• Profit on exchange transactions
• Profit on sale of investments
• Profit on revaluation of investments
• Profit on sale of fixed assets
• Letting of locker (income from locker
charges )
• Misc. income -Godown rent
 Ponder over these points
• Govt. securities shown at book value and diff.
between MV and BV is given in the notes
• If some fixed assets are w/o on revaluation of
assets/reduction of capital every B/S after wards
should. show the revised figure for next 5 yrs. With
the date & amt. revised
• Other fixed assets includes vehicles, furniture and
fixtures. Lockers and safe deposit vaults are
included in furniture
 Ponder over these points
• 20% to reserve fund before declaring dividend
• Gold is treated as investment
• Silver is treated as other assets
• Income from performing assets is recognized on
accrual basis while in r/o non-performing assets it is
on cash basis
• In r/o NPA, if income is already recognized, then
make provision
ASSET CLASSIFICATION ETC
• Asset Classification
– Performing and
– non performing ( remain out of order)
• Income Recognition
– Performing-accrual basis
– Non performing-cash basis
• Asset Classification
• Std-0.40% (revised from 0.25%)
• Sub-Std.<18 months-10%
• Doubtful>18 months-usl-100%-secured.3yrs-50%,>1&<3-
30%-upto 1year-20%
• Loss assets-100%
 SLR & NON SLR DEPOSITS
Held to maturity Available for Held for trading
sale
Investment should Freedom available Freedom available
not exceed 25% of
total investment
-no marked to market. -Marked to market Marked to market
Profit on sale treated as -profit on sale of
cap. Reserve investment.taken to
P&L a/c
To be sold within
90 days
 COMPANY ACCOUNTS
Features of a Joint stock Company
• Incorporated association
• Artificial person
• Perpetual succession
• Common seal
• Limited liability
• Separation of management from ownership
• Transferability of shares
• Separate legal status
• Large membership
 Types of companies
On the basis of On the basis of On the basis of
incorporation ownership liability
Chartered Private company Co.limited by
company shares
Statutory Public company Co. Ltd. by
company guarantee
Registered Government Co. with
company company unlimited
liability
Foreign Holding
company company
 SHARE CAPITAL

• EQUITY
• PREFERENCE
– CUMULATIVE
– REDEEMABLE
– PARTICIPATING
 SHARE CAPITAL
• AUTHORISED CAPITAL
• ISSUED CAPITAL
• SUBSCRIBED CAPITAL
• CALLED CAPITAL
• PAID UP CAPITAL
 ISSUE OF SHARE AT PAR
-BANK Debited -
- SHARE APPLICATION
- credited
-SHARE APPLICATION Debited -
-SHARE CAPITAL - Credited
Over subscription
-share application Debited -
-share capital - Credited
-bank (refund) - Credited
-share allotment - Credited
 SHARE ALLOTMENT/SHARE CALL
Share allotment a/c Debited -
- Credited
Share capital a/c
Debited -
Bank a/c
- Credited
Share allotment a/c
Share call a/c Debited -
- Credited
Share capital a/c
Bank a/c Debited -
- Credited
Share call a/c
Calls in arrears a/c Debited -
- Credited
Share allotment a/c
Share call a/c - Credited
 Issue of shares at premium
Share application/ Debited -
allotment a/c
Share capital A/c - Credited
Share premium A/c - Credited
 Issue of shares at discount
Share allotment A/c Debited -
Discount on issue of Debited -
shares A/c
Share capital A/c - Credited
 Forfeiture of shares

Share capital A/c Debited -

Call in arrears A/c - Credited
Forfeited shares A/c - Credited
 Re-issue of shares
Bank A/c Debited -
Forfeited shares A/c Debited -
Share capital A/c - Credited
Capital reserve A/c - Credited
 Issue of Bonus shares
Cap. Red. Reserve A/c Debited -
Share premium A/c Debited -
Capital reserve A/c Debited -
Gen Reserve A/c Debited -
Profit & Loss A/c Debited -
Bonus to shareholders A/c - credited
Bonus to shareholders A/c Debited -
Equity share capital A/c credited
 Balance sheet equation
LIABILITIES ASSETS

Capital 300.00 Fixed assets 700.00

Reserves 200.00 Current 300.00

assets
Term Loans 300.00

Current 300.00
Liabilities
Total 1000.00 Total 1000.00
 Balance Sheet Equation
Assets = Liabilities

Assets = Liabilities (+) Capital

Liabilities = Assets (-) Capital

Capital = Assets (-) Liabilities

 BALANCE SHEET EQUATION

Assets = Liabilities
Assets = Capital + Liabilities
Assets =Net worth + Liabilities
Net worth = Capital + Reserves& Surplus
Net worth = Assets Less Liabilities
1. The Assets of a business are Rs.500000 and its capital is
Rs.115000. Its liabilities on that date would be------
a) Rs.615000
b) Rs.385000
c) Rs.500000
d) Rs. 115000
2. A had a capital of Rs.750000. He has also purchased goods
of Rs.150000 on credit from Mr. Saha. The value of total
assets of the entity is-----
a) Rs.750000
b) Rs.900000
c) Rs.600000
d) Rs.1050000
 B/s Equation
Examples
(1) If the net worth of the business is Rs.1100,fixed assets are Rs. 600, current
assets Rs.400, investments Rs.300, current liabilities Rs. Nil, what is the
amount of claim to outsiders?
– Rs. 1300l
– Rs. 500
– Rs.200*
– Rs. Nil
(2) Identify the wrong pair
– Outstanding expenses - Personal Account account*
– Profit and Loss Account (Dr. balance) – Application of funds
– Net worth less reserves & surplus - Balance in P & L Account*
– Balance sheet - Financial position
 Computerized accounting
• Computer language: cobol, foxpro,unix
…etc
• Analog computers : scientific and mech.
Field
• Digital computers: computerized accounting
• Data : fact
• Record : group of data
• Data file: data records
 Computerized accounting
• Computer language- Cobol, FoxPro, Unix …..
• Analog computers- scientific/ mechanical field
• Digital computers- computerized accounting
• Data- fact
• Record- group of data
• File- data record
 Contact details
• Website: www.iibf.org.in
• Email: sudaaba@iibf.org.in
• Phone. 022-22183898
• 022-22187003/4/5