Unit 6: Preparation of Financial Statements of Banks: Notes | Advanced Accounting for CA Intermediate PDF Download

 Page 1


  
8.84 ADVANCED ACCOUNTING 
 
LEARNING OUTCOMES 
UNIT – 6: PREPARATION OF FINANCIAL 
STATEMENTS OF BANKS 
 
 
? Learn how to prepare profit and loss account of a bank. 
? Compute tax provision, transfer to statutory reserve, provisions 
on non-performing assets, income recognition on NPA, 
depreciation on current investments 
? Learn how to prepare Balance-sheet 
 
 6.1  INTRODUCTION 
While preparing financial statements, banks have to follow various guidelines / 
directions given by RBI/Government of India governing the Financial Statements. 
Profit and Loss Account and Balance Sheet are prepared as on 31st March every 
year by all the Banks.  They contain 18 schedules as under 
Schedules forming part of Form A – Balance Sheet Schedule -  
1. Capital Schedule 
2. Reserves & Surplus Schedule 
3. Deposits Schedule 
4. Borrowings Schedule    
5. Other Liabilities and Provisions Schedule    
6. Cash and balances with RBI Schedule    
7. Balances with Banks and money at call and short notice.  
8. Investments  
Page 2


  
8.84 ADVANCED ACCOUNTING 
 
LEARNING OUTCOMES 
UNIT – 6: PREPARATION OF FINANCIAL 
STATEMENTS OF BANKS 
 
 
? Learn how to prepare profit and loss account of a bank. 
? Compute tax provision, transfer to statutory reserve, provisions 
on non-performing assets, income recognition on NPA, 
depreciation on current investments 
? Learn how to prepare Balance-sheet 
 
 6.1  INTRODUCTION 
While preparing financial statements, banks have to follow various guidelines / 
directions given by RBI/Government of India governing the Financial Statements. 
Profit and Loss Account and Balance Sheet are prepared as on 31st March every 
year by all the Banks.  They contain 18 schedules as under 
Schedules forming part of Form A – Balance Sheet Schedule -  
1. Capital Schedule 
2. Reserves & Surplus Schedule 
3. Deposits Schedule 
4. Borrowings Schedule    
5. Other Liabilities and Provisions Schedule    
6. Cash and balances with RBI Schedule    
7. Balances with Banks and money at call and short notice.  
8. Investments  
 
 
 8.85 
 
BANKING COMPANIES 
9. Advances 
10. Fixed Assets 
11. Other Assets 
12. Contingent Liabilities / Bills for Collection 
Schedules forming Part of Form B – Profit and Loss Account. 
13. Interest Earned.  
14. Other Income.  
15. Interest Expended. 
16. Operating Expenses.  
17. Schedules forming Part of Annual Report  
18. Significant Accounting Policies.  
19. Notes forming part of accounts.  
The Assets side of the Balance Sheet has been arranged in such a manner that liquid 
assets such as Cash, Balances with Banks and Investments are shown in that order. 
This enables the investor to quickly identify how much the Bank is liquid enough to 
meet its commitment towards its customers. This arrangement of Assets is from 
liquid to fixed assets in contrast to corporate balance sheets where the 
arrangement is from fixed to liquid. While preparing financial statements, banks 
have to follow various guidelines / directions given by RBI/Government of India 
governing the Financial Statements. 
Forms for the preparation and presentation of financial statements of banking 
companies have been given in Annexure I & II along with compliance guidelines of 
RBI given in Annexure III at the end of this chapter. In this unit we shall straightaway 
go to the problems relating to preparation of final accounts of banks. 
Illustration 1 
From the following information, prepare a Balance Sheet of ADT International Bank 
as on 31st March, 20X1 giving the relevant schedules and also specify any four 
Principal Accounting Polices:           ` in lakhs 
 Dr. Cr. 
Share Capital  198.00 
19,80,000 Shares of ` 10 each   
Page 3


  
8.84 ADVANCED ACCOUNTING 
 
LEARNING OUTCOMES 
UNIT – 6: PREPARATION OF FINANCIAL 
STATEMENTS OF BANKS 
 
 
? Learn how to prepare profit and loss account of a bank. 
? Compute tax provision, transfer to statutory reserve, provisions 
on non-performing assets, income recognition on NPA, 
depreciation on current investments 
? Learn how to prepare Balance-sheet 
 
 6.1  INTRODUCTION 
While preparing financial statements, banks have to follow various guidelines / 
directions given by RBI/Government of India governing the Financial Statements. 
Profit and Loss Account and Balance Sheet are prepared as on 31st March every 
year by all the Banks.  They contain 18 schedules as under 
Schedules forming part of Form A – Balance Sheet Schedule -  
1. Capital Schedule 
2. Reserves & Surplus Schedule 
3. Deposits Schedule 
4. Borrowings Schedule    
5. Other Liabilities and Provisions Schedule    
6. Cash and balances with RBI Schedule    
7. Balances with Banks and money at call and short notice.  
8. Investments  
 
 
 8.85 
 
BANKING COMPANIES 
9. Advances 
10. Fixed Assets 
11. Other Assets 
12. Contingent Liabilities / Bills for Collection 
Schedules forming Part of Form B – Profit and Loss Account. 
13. Interest Earned.  
14. Other Income.  
15. Interest Expended. 
16. Operating Expenses.  
17. Schedules forming Part of Annual Report  
18. Significant Accounting Policies.  
19. Notes forming part of accounts.  
The Assets side of the Balance Sheet has been arranged in such a manner that liquid 
assets such as Cash, Balances with Banks and Investments are shown in that order. 
This enables the investor to quickly identify how much the Bank is liquid enough to 
meet its commitment towards its customers. This arrangement of Assets is from 
liquid to fixed assets in contrast to corporate balance sheets where the 
arrangement is from fixed to liquid. While preparing financial statements, banks 
have to follow various guidelines / directions given by RBI/Government of India 
governing the Financial Statements. 
Forms for the preparation and presentation of financial statements of banking 
companies have been given in Annexure I & II along with compliance guidelines of 
RBI given in Annexure III at the end of this chapter. In this unit we shall straightaway 
go to the problems relating to preparation of final accounts of banks. 
Illustration 1 
From the following information, prepare a Balance Sheet of ADT International Bank 
as on 31st March, 20X1 giving the relevant schedules and also specify any four 
Principal Accounting Polices:           ` in lakhs 
 Dr. Cr. 
Share Capital  198.00 
19,80,000 Shares of ` 10 each   
  
 
8.86 ADVANCED ACCOUNTING 
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 RBI 37.88  
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- Premises 1,10,000 
Depreciation - Furniture 78,000 
50% of the Term Loans are secured by Government guarantees. 10% of cash credit 
(including Debit balance in Current A/c) is unsecured. Transfer 25% of its profit to the 
reserve fund. 
  
Page 4


  
8.84 ADVANCED ACCOUNTING 
 
LEARNING OUTCOMES 
UNIT – 6: PREPARATION OF FINANCIAL 
STATEMENTS OF BANKS 
 
 
? Learn how to prepare profit and loss account of a bank. 
? Compute tax provision, transfer to statutory reserve, provisions 
on non-performing assets, income recognition on NPA, 
depreciation on current investments 
? Learn how to prepare Balance-sheet 
 
 6.1  INTRODUCTION 
While preparing financial statements, banks have to follow various guidelines / 
directions given by RBI/Government of India governing the Financial Statements. 
Profit and Loss Account and Balance Sheet are prepared as on 31st March every 
year by all the Banks.  They contain 18 schedules as under 
Schedules forming part of Form A – Balance Sheet Schedule -  
1. Capital Schedule 
2. Reserves & Surplus Schedule 
3. Deposits Schedule 
4. Borrowings Schedule    
5. Other Liabilities and Provisions Schedule    
6. Cash and balances with RBI Schedule    
7. Balances with Banks and money at call and short notice.  
8. Investments  
 
 
 8.85 
 
BANKING COMPANIES 
9. Advances 
10. Fixed Assets 
11. Other Assets 
12. Contingent Liabilities / Bills for Collection 
Schedules forming Part of Form B – Profit and Loss Account. 
13. Interest Earned.  
14. Other Income.  
15. Interest Expended. 
16. Operating Expenses.  
17. Schedules forming Part of Annual Report  
18. Significant Accounting Policies.  
19. Notes forming part of accounts.  
The Assets side of the Balance Sheet has been arranged in such a manner that liquid 
assets such as Cash, Balances with Banks and Investments are shown in that order. 
This enables the investor to quickly identify how much the Bank is liquid enough to 
meet its commitment towards its customers. This arrangement of Assets is from 
liquid to fixed assets in contrast to corporate balance sheets where the 
arrangement is from fixed to liquid. While preparing financial statements, banks 
have to follow various guidelines / directions given by RBI/Government of India 
governing the Financial Statements. 
Forms for the preparation and presentation of financial statements of banking 
companies have been given in Annexure I & II along with compliance guidelines of 
RBI given in Annexure III at the end of this chapter. In this unit we shall straightaway 
go to the problems relating to preparation of final accounts of banks. 
Illustration 1 
From the following information, prepare a Balance Sheet of ADT International Bank 
as on 31st March, 20X1 giving the relevant schedules and also specify any four 
Principal Accounting Polices:           ` in lakhs 
 Dr. Cr. 
Share Capital  198.00 
19,80,000 Shares of ` 10 each   
  
 
8.86 ADVANCED ACCOUNTING 
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 RBI 37.88  
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- Premises 1,10,000 
Depreciation - Furniture 78,000 
50% of the Term Loans are secured by Government guarantees. 10% of cash credit 
(including Debit balance in Current A/c) is unsecured. Transfer 25% of its profit to the 
reserve fund. 
  
 
 
 8.87 
 
BANKING COMPANIES 
Solution 
Balance Sheet of ADT International Bank 
As on 31st March, 20X1 
(` in lacs) 
Capital and Liabilities Schedule As on 
31.3.20X1 
As on  
31.3.20X0 
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  
  25,88.22  
Assets    
Cash and balances with RBI 6 219.63  
Balances with banks and money    
 at call and short notice 7 344.39  
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  
Schedule 1— Capital 
Authorised Capital – 
Issued, Subscribed and  
Paid up Capital  
19,80,000 Shares of ` 10 each 1,98.00 
 
  
Page 5


  
8.84 ADVANCED ACCOUNTING 
 
LEARNING OUTCOMES 
UNIT – 6: PREPARATION OF FINANCIAL 
STATEMENTS OF BANKS 
 
 
? Learn how to prepare profit and loss account of a bank. 
? Compute tax provision, transfer to statutory reserve, provisions 
on non-performing assets, income recognition on NPA, 
depreciation on current investments 
? Learn how to prepare Balance-sheet 
 
 6.1  INTRODUCTION 
While preparing financial statements, banks have to follow various guidelines / 
directions given by RBI/Government of India governing the Financial Statements. 
Profit and Loss Account and Balance Sheet are prepared as on 31st March every 
year by all the Banks.  They contain 18 schedules as under 
Schedules forming part of Form A – Balance Sheet Schedule -  
1. Capital Schedule 
2. Reserves & Surplus Schedule 
3. Deposits Schedule 
4. Borrowings Schedule    
5. Other Liabilities and Provisions Schedule    
6. Cash and balances with RBI Schedule    
7. Balances with Banks and money at call and short notice.  
8. Investments  
 
 
 8.85 
 
BANKING COMPANIES 
9. Advances 
10. Fixed Assets 
11. Other Assets 
12. Contingent Liabilities / Bills for Collection 
Schedules forming Part of Form B – Profit and Loss Account. 
13. Interest Earned.  
14. Other Income.  
15. Interest Expended. 
16. Operating Expenses.  
17. Schedules forming Part of Annual Report  
18. Significant Accounting Policies.  
19. Notes forming part of accounts.  
The Assets side of the Balance Sheet has been arranged in such a manner that liquid 
assets such as Cash, Balances with Banks and Investments are shown in that order. 
This enables the investor to quickly identify how much the Bank is liquid enough to 
meet its commitment towards its customers. This arrangement of Assets is from 
liquid to fixed assets in contrast to corporate balance sheets where the 
arrangement is from fixed to liquid. While preparing financial statements, banks 
have to follow various guidelines / directions given by RBI/Government of India 
governing the Financial Statements. 
Forms for the preparation and presentation of financial statements of banking 
companies have been given in Annexure I & II along with compliance guidelines of 
RBI given in Annexure III at the end of this chapter. In this unit we shall straightaway 
go to the problems relating to preparation of final accounts of banks. 
Illustration 1 
From the following information, prepare a Balance Sheet of ADT International Bank 
as on 31st March, 20X1 giving the relevant schedules and also specify any four 
Principal Accounting Polices:           ` in lakhs 
 Dr. Cr. 
Share Capital  198.00 
19,80,000 Shares of ` 10 each   
  
 
8.86 ADVANCED ACCOUNTING 
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 RBI 37.88  
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- Premises 1,10,000 
Depreciation - Furniture 78,000 
50% of the Term Loans are secured by Government guarantees. 10% of cash credit 
(including Debit balance in Current A/c) is unsecured. Transfer 25% of its profit to the 
reserve fund. 
  
 
 
 8.87 
 
BANKING COMPANIES 
Solution 
Balance Sheet of ADT International Bank 
As on 31st March, 20X1 
(` in lacs) 
Capital and Liabilities Schedule As on 
31.3.20X1 
As on  
31.3.20X0 
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  
  25,88.22  
Assets    
Cash and balances with RBI 6 219.63  
Balances with banks and money    
 at call and short notice 7 344.39  
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  
Schedule 1— Capital 
Authorised Capital – 
Issued, Subscribed and  
Paid up Capital  
19,80,000 Shares of ` 10 each 1,98.00 
 
  
  
 
8.88 ADVANCED ACCOUNTING 
Schedule 2— Reserves and Surplus 
(1) Statutory Reserve-   
 Opening balance 2,31.00  
 Additions during the year 37.50  
   268.50 
(2) Balance in Profit & Loss   
 Account (W.N. 1)  524.50 
   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 India-  
Other banks 1,10.00 
Schedule 5— Other Liabilities and Provisions 
Bills Payable 0.10 
Schedule 6— Cash and balances with RBI 
(i) Cash in hand 1,60.15 
(ii) Balances with RBI  
 In current account (W.N. 2) 59.48 
  219.63 
Schedule 7—Balances with banks and money at call and short notice 
1. In India  
 (i) Balances with banks  
  (a)  in current accounts (W.N. 3) 1,34.27 
 (ii) Money at call and short notice 2,10.12 
  344.39