ACCOUNTING & FINANCE FOR
BANKERS-JAIIB-MODULE D
PRESENTATION BY
S.D.BARGIR
Joint Director-IIBF
Topics
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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
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Profit sharing ratio –Equal
No interest on capital
No interest on drawings
[email protected]% 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
(AP)
(SP)
AP x Multiplier SP x multiplier
SP = AP less NP
NP=normal profit
Multiplier is
given
Multiplier is
given
Capitalization of
profit
(Capitalised
value) less
Actual Capital
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
year, premium w/o to P between surrender
& L A/c
value and Book value
is w/o to P & L A/c
difference between SV
and BV is w/o to Jt.
Policy Reserve A/c
receipt of policy amt.
Amount received is
credited to partners
receipt of policy amt.
receipt of policy amt.
If amount is > SV, the
excess is credited to
Policy amount credited
partners
to partners
Types of partners
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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
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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 ACCOUNTFORM B
Income
Interest Earned
Other Income
Expenditure
Interest Expended
Operating Expenses
Provision for contingencies
Profit /Loss
Appropriations
Transfer to Reserves
Proposed dividend
Balance carried to Balance
sheet
Schedule.13
Schedule.14
Schedule.15
Schedule.16
NOTES TO ACCOUNTS
Significant
Schedule.17
Accounting
Policies
Notes forming Schedule.18
part of Accounts
Other Income
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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
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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&<330%-upto 1year-20%
• Loss assets-100%
SLR & NON SLR DEPOSITS
Held to maturity Available for
sale
Investment should
not exceed 25% of
total investment
Freedom available
-no marked to market. -Marked to market
Profit on sale treated as -profit on sale of
cap. Reserve
investment.taken to
P&L a/c
Held for trading
Freedom available
Marked to market
To be sold within
90 days
COMPANY ACCOUNTS
Features of a Joint stock Company
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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
incorporation
On the basis of
ownership
On the basis of
liability
Chartered
company
Private company Co.limited
shares
Statutory
company
Public company Co. Ltd. by
guarantee
Registered
company
Government
company
Foreign
company
Holding
company
Co. with
unlimited
liability
by
SHARE CAPITAL
• EQUITY
• PREFERENCE
– CUMULATIVE
– REDEEMABLE
– PARTICIPATING
SHARE CAPITAL
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AUTHORISED CAPITAL
ISSUED CAPITAL
SUBSCRIBED CAPITAL
CALLED CAPITAL
PAID UP CAPITAL
ISSUE OF SHARE AT PAR
-BANK
credited
-SHARE CAPITAL
Debited
Debited
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Over subscription
-share application
-share capital
-bank (refund)
-share allotment
Debited
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Credited
Credited
Credited
- SHARE APPLICATION
-SHARE APPLICATION
Credited
SHARE ALLOTMENT/SHARE CALL
Share allotment a/c
Share capital a/c
Debited
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Credited
Bank a/c
Debited
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Credited
Debited
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Credited
Debited
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Credited
Debited
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Credited
-
Credited
Share allotment a/c
Share call a/c
Share capital a/c
Bank a/c
Share call a/c
Calls in arrears a/c
Share allotment a/c
Share call a/c
Issue of shares at premium
Share application/
allotment a/c
Share capital A/c
Share premium A/c
Debited
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Credited
Credited
Issue of shares at discount
Share allotment A/c
Discount on issue of
shares A/c
Share capital A/c
Debited
Debited
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Credited
Forfeiture of shares
Share capital A/c
Call in arrears A/c
Forfeited shares A/c
Debited
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Credited
Credited
Re-issue of shares
Bank A/c
Forfeited shares A/c
Share capital A/c
Capital reserve A/c
Debited
Debited
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Credited
Credited
Issue of Bonus shares
Cap. Red. Reserve A/c
Share premium A/c
Capital reserve A/c
Gen Reserve A/c
Profit & Loss A/c
Bonus to shareholders A/c
Bonus to shareholders A/c
Equity share capital A/c
Debited
Debited
Debited
Debited
Debited
Debited
credited
credited
Balance sheet equation
LIABILITIES
ASSETS
Capital
300.00
Fixed assets 700.00
Reserves
200.00
Current
assets
300.00
Term Loans
300.00
Current
Liabilities
Total
300.00
Total
1000.00
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?
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Rs. 1300l
–
Rs. 500
–
Rs.200*
–
Rs. Nil
(2) Identify the wrong pair
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Outstanding expenses - Personal Account account*
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Profit and Loss Account (Dr. balance) – Application of funds
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Net worth less reserves & surplus - Balance in P & L Account*
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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
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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: [email protected]
• Phone. 022-22183898
• 022-22187003/4/5
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ACCOUNTING & FINANCE FOR BANKERS-JAIIB