Accounting & finance for bankers


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Accounting & finance for bankers

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Accounting & finance for bankers

  2. 2. Topics <ul><li>Partnership accounts </li></ul><ul><li>Final accounts of banking companies </li></ul><ul><li>Company accounts </li></ul><ul><li>Balance sheet equation </li></ul><ul><li>Accounting in a Computerized environment </li></ul>
  3. 3. Partnership Accounts <ul><li>Introduction </li></ul><ul><li>Definition </li></ul><ul><li>Partnership deed </li></ul>
  4. 4. In the absence of partnership deed/if deed is silent <ul><li>Profit sharing ratio –Equal </li></ul><ul><li>No interest on capital </li></ul><ul><li>No interest on drawings </li></ul><ul><li>interest@6% on loan given by partner </li></ul><ul><li>No salary /no commission/ no remuneration </li></ul><ul><li>Capital accounts under fluctuating capital method </li></ul>
  5. 5. Methods of capital accounts <ul><li>Fixed </li></ul><ul><ul><ul><li>Capital account-transactions relating to capital </li></ul></ul></ul><ul><ul><ul><li>Current account </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Other transactions such as Interest, profit, goodwill, past profits/losses & adjustments </li></ul></ul></ul></ul></ul><ul><li>Fluctuating </li></ul><ul><ul><ul><li>One account- all transactions </li></ul></ul></ul>
  6. 6. GOODWILL <ul><li>It’s reputation, super profit earning capacity of a firm </li></ul><ul><li>Necessity </li></ul><ul><ul><ul><li>change in profit sharing ratio </li></ul></ul></ul><ul><ul><ul><li>Admission, retirement, death </li></ul></ul></ul><ul><ul><ul><li>Sale of business </li></ul></ul></ul><ul><li>Methods: </li></ul><ul><ul><ul><li>Average profit </li></ul></ul></ul><ul><ul><ul><li>Super profit </li></ul></ul></ul><ul><ul><ul><li>capitalization of profit </li></ul></ul></ul>
  7. 7. Methods of goodwill Average profit (AP) Super profit (SP) Capitalization of profit AP x Multiplier SP x multiplier SP = AP less NP NP=normal profit (Capitalised value) less Actual Capital Multiplier is given Multiplier is given
  8. 8. GOODWILL IMPORTANT ENTRIES <ul><li>ADMISSION </li></ul><ul><ul><li>When goodwill is raised and written off </li></ul></ul><ul><ul><ul><li>Debit goodwill and credit old partners capital a/c (old ratio) </li></ul></ul></ul><ul><ul><ul><li>Debit All partners capital a/c & credit goodwill (new ratio) </li></ul></ul></ul><ul><li>RETIREMENT/DEATH </li></ul><ul><ul><li>When goodwill is raised and written off </li></ul></ul><ul><ul><ul><li>Debit goodwill and credit old partners capital a/c (old ratio) </li></ul></ul></ul><ul><ul><ul><li>Debit Continuing partners capital a/c & credit goodwill (new ratio) </li></ul></ul></ul>
  9. 9. … <ul><li>ADMISSION </li></ul><ul><ul><ul><li>revaluation of assets/ liabilities, goodwill, capital adjustments, balance of reserves, past losses </li></ul></ul></ul><ul><li>RETIREMENT </li></ul><ul><ul><ul><li>As per Act of 1932, retirement by consent, partnership deed provision, at will by giving proper notice </li></ul></ul></ul><ul><ul><ul><li>revaluation of assets/ liabilities, goodwill, capital adjustments, balance of reserves, past losses </li></ul></ul></ul>
  10. 10. Joint life policy Premium treated as expenses Premium treated as asset Premium treated as reserves At the end of each year, premium w/o to P & L A/c Each year difference between surrender 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. If amount is > SV, the excess is credited to partners receipt of policy amt. Policy amount credited to partners
  11. 11. Types of partners <ul><li>Active </li></ul><ul><li>Sleeping </li></ul><ul><li>Quasi </li></ul><ul><li>nominal </li></ul>
  12. 12. FINAL ACCOUNTS OF BANKING COMPANIES <ul><li>Definition </li></ul><ul><li>Requirements –Accounts & audit </li></ul><ul><ul><ul><ul><li>Third Schedule annexed to BRA </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Form A- Balance sheet </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Form B- Profit & Loss Account </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Audit </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Submission of accounts- RBI- within 3 months </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Publication of accounts- within 6 months </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Auditor-prior approval of RBI for appt/removal </li></ul></ul></ul></ul>
  13. 13. 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
  14. 14. Demand deposits <ul><li>Credit balances in OD and CC </li></ul><ul><li>Deposits payable at call </li></ul><ul><li>Overdue deposits </li></ul><ul><li>In-operative current accounts </li></ul><ul><li>Matured time deposits </li></ul><ul><li>Matured cash certificates </li></ul><ul><li>Matured certificate of deposits </li></ul>
  15. 15. Contingent liabilities <ul><li>Schedule-12 </li></ul><ul><li>Claims against bank not acknowledged as debts </li></ul><ul><li>Liability for partly paid shares </li></ul><ul><li>Liability on account of outstanding forward exchange contracts </li></ul><ul><li>Acceptances ,endorsement & other obligations </li></ul><ul><li>Other items for which bank is contingently liable. </li></ul>
  16. 16. PROFIT & LOSS ACCOUNT-FORM B Income Interest Earned Other Income Schedule.13 Schedule.14 Expenditure Interest Expended Operating Expenses Provision for contingencies Schedule.15 Schedule.16 Profit /Loss Appropriations Transfer to Reserves Proposed dividend Balance carried to Balance sheet
  17. 17. NOTES TO ACCOUNTS Significant Accounting Policies Schedule.17 Notes forming part of Accounts Schedule.18
  18. 18. Other Income <ul><li>Profit on exchange transactions </li></ul><ul><li>Profit on sale of investments </li></ul><ul><li>Profit on revaluation of investments </li></ul><ul><li>Profit on sale of fixed assets </li></ul><ul><li>Letting of locker (income from locker charges ) </li></ul><ul><li>Misc. income -Godown rent </li></ul>
  19. 19. Ponder over these points <ul><li>Govt. securities shown at book value and diff. between MV and BV is given in the notes </li></ul><ul><li>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 </li></ul><ul><li>Other fixed assets includes vehicles, furniture and fixtures. Lockers and safe deposit vaults are included in furniture </li></ul>
  20. 20. Ponder over these points <ul><li>20% to reserve fund before declaring dividend </li></ul><ul><li>Gold is treated as investment </li></ul><ul><li>Silver is treated as other assets </li></ul><ul><li>Income from performing assets is recognized on accrual basis while in r/o non-performing assets it is on cash basis </li></ul><ul><li>In r/o NPA, if income is already recognized, then make provision </li></ul>
  21. 21. ASSET CLASSIFICATION ETC <ul><li>Asset Classification </li></ul><ul><ul><ul><ul><li>Performing and </li></ul></ul></ul></ul><ul><ul><ul><ul><li>non performing ( remain out of order) </li></ul></ul></ul></ul><ul><li>Income Recognition </li></ul><ul><ul><ul><ul><li>Performing-accrual basis </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Non performing-cash basis </li></ul></ul></ul></ul><ul><li>Asset Classification </li></ul><ul><ul><ul><ul><ul><li>Std-0.40% (revised from 0.25%) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Sub-Std.<18 months-10% </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Doubtful>18 months-usl-100%-secured.3yrs-50%,>1&<3-30%-upto 1year-20% </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Loss assets-100% </li></ul></ul></ul></ul></ul>
  22. 22. SLR & NON SLR DEPOSITS Held to maturity Available for sale Held for trading Investment should not exceed 25% of total investment Freedom available Freedom available -no marked to market. Profit on sale treated as cap. Reserve -Marked to market -profit on sale of investment.taken to P&L a/c Marked to market To be sold within 90 days
  23. 23. COMPANY ACCOUNTS <ul><li>Features of a Joint stock Company </li></ul><ul><li>Incorporated association </li></ul><ul><li>Artificial person </li></ul><ul><li>Perpetual succession </li></ul><ul><li>Common seal </li></ul><ul><li>Limited liability </li></ul><ul><li>Separation of management from ownership </li></ul><ul><li>Transferability of shares </li></ul><ul><li>Separate legal status </li></ul><ul><li>Large membership </li></ul>
  24. 24. Types of companies On the basis of incorporation On the basis of ownership On the basis of liability Chartered company Private company by shares Statutory company Public company Co. Ltd. by guarantee Registered company Government company Co. with unlimited liability Foreign company Holding company
  25. 25. SHARE CAPITAL <ul><li>EQUITY </li></ul><ul><li>PREFERENCE </li></ul><ul><ul><ul><ul><li>CUMULATIVE </li></ul></ul></ul></ul><ul><ul><ul><ul><li>REDEEMABLE </li></ul></ul></ul></ul><ul><ul><ul><ul><li>PARTICIPATING </li></ul></ul></ul></ul>
  26. 26. SHARE CAPITAL <ul><li>AUTHORISED CAPITAL </li></ul><ul><li>ISSUED CAPITAL </li></ul><ul><li>SUBSCRIBED CAPITAL </li></ul><ul><li>CALLED CAPITAL </li></ul><ul><li>PAID UP CAPITAL </li></ul>
  27. 27. ISSUE OF SHARE AT PAR -BANK - SHARE APPLICATION Debited - - credited <ul><li>SHARE APPLICATION </li></ul><ul><li>SHARE CAPITAL </li></ul>Debited - - Credited Over subscription -share application -share capital -bank (refund) -share allotment Debited - - - - Credited Credited Credited
  28. 28. SHARE ALLOTMENT/SHARE CALL Share allotment a/c Share capital a/c Debited - - Credited Bank a/c Share allotment a/c Debited - - Credited Share call a/c Share capital a/c Debited - - Credited Bank a/c Share call a/c Debited - - Credited Calls in arrears a/c Share allotment a/c Share call a/c Debited - - - Credited Credited
  29. 29. Issue of shares at premium Share application/ allotment a/c Share capital A/c Share premium A/c Debited - - - Credited Credited
  30. 30. Issue of shares at discount Share allotment A/c Discount on issue of shares A/c Share capital A/c Debited Debited - - - Credited
  31. 31. Forfeiture of shares Share capital A/c Call in arrears A/c Forfeited shares A/c Debited - - - Credited Credited
  32. 32. Re-issue of shares Bank A/c Forfeited shares A/c Share capital A/c Capital reserve A/c Debited Debited - - - - Credited Credited
  33. 33. 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 Debited Debited Debited Debited Debited - - - - - - credited Bonus to shareholders A/c Equity share capital A/c Debited - credited
  34. 34. 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 300.00 Total 1000.00 Total 1000.00
  35. 35. Balance Sheet Equation Assets = Liabilities Assets = Liabilities (+) Capital Liabilities = Assets (-) Capital Capital = Assets (-) Liabilities
  36. 36. BALANCE SHEET EQUATION <ul><li>Assets = Liabilities </li></ul><ul><li>Assets = Capital + Liabilities </li></ul><ul><li>Assets =Net worth + Liabilities </li></ul><ul><li>Net worth = Capital + Reserves& Surplus </li></ul><ul><li>Net worth = Assets Less Liabilities </li></ul>
  37. 37. <ul><li>1. The Assets of a business are Rs.500000 and its capital is Rs.115000. Its liabilities on that date would be------ </li></ul><ul><li>Rs.615000 </li></ul><ul><li>Rs.385000 </li></ul><ul><li>Rs.500000 </li></ul><ul><li>Rs. 115000 </li></ul><ul><li>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----- </li></ul><ul><li>Rs.750000 </li></ul><ul><li>Rs.900000 </li></ul><ul><li>Rs.600000 </li></ul><ul><li>Rs.1050000 </li></ul>
  38. 38. B/s Equation Examples <ul><li>(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? </li></ul><ul><ul><li>Rs. 1300l </li></ul></ul><ul><ul><li>Rs. 500 </li></ul></ul><ul><ul><li>Rs.200* </li></ul></ul><ul><ul><li>Rs. Nil </li></ul></ul><ul><li>(2) Identify the wrong pair </li></ul><ul><ul><li>Outstanding expenses - Personal Account account* </li></ul></ul><ul><ul><li>Profit and Loss Account (Dr. balance) – Application of funds </li></ul></ul><ul><ul><li>Net worth less reserves & surplus - Balance in P & L Account* </li></ul></ul><ul><ul><li>Balance sheet - Financial position </li></ul></ul>
  39. 39. Computerized accounting <ul><li>Computer language: cobol, foxpro,unix …etc </li></ul><ul><li>Analog computers : scientific and mech. Field </li></ul><ul><li>Digital computers: computerized accounting </li></ul><ul><li>Data : fact </li></ul><ul><li>Record : group of data </li></ul><ul><li>Data file: data records </li></ul>
  40. 40. Computerized accounting <ul><li>Computer language- Cobol, FoxPro, Unix ….. </li></ul><ul><li>Analog computers- scientific/ mechanical field </li></ul><ul><li>Digital computers- computerized accounting </li></ul><ul><li>Data- fact </li></ul><ul><li>Record- group of data </li></ul><ul><li>File- data record </li></ul>