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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 2,10.12 344.39Read More
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FAQs on Unit 6: Preparation of Financial Statements of Banks: Notes - Advanced Accounting for CA Intermediate
| 1. What is the purpose of preparing financial statements for banks? |  |
Ans. The purpose of preparing financial statements for banks is to provide information about the bank's financial position, performance, and cash flows. These statements help stakeholders, such as investors, regulators, and customers, assess the bank's solvency, profitability, and liquidity. Financial statements also assist in credit analysis, risk assessment, and decision-making processes.
| 2. What are the key components of financial statements for banks? | |
Ans. The key components of financial statements for banks include the balance sheet, income statement, statement of changes in equity, statement of cash flows, and accompanying notes. The balance sheet presents the bank's assets, liabilities, and shareholders' equity at a specific point in time. The income statement shows the bank's revenues, expenses, and net income over a given period. The statement of changes in equity reflects the changes in shareholders' equity during the reporting period. The statement of cash flows reports the bank's cash inflows and outflows from operating, investing, and financing activities.
| 3. How do banks prepare financial statements in accordance with accounting standards? | |
Ans. Banks prepare financial statements in accordance with accounting standards by following the specific guidelines and principles outlined in the applicable accounting framework, such as International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). They ensure that all relevant financial transactions and events are recognized, measured, and disclosed accurately and consistently. Banks also consider specific industry-related accounting standards and regulatory requirements that may impact their financial reporting.
| 4. What are the key considerations for preparing financial statements of banks? | |
Ans. When preparing financial statements of banks, key considerations include the classification and measurement of financial instruments, impairment of loans and other assets, provisioning for potential losses, recognition of income from interest and fees, fair value measurement, and disclosure of risk exposures. Banks need to carefully assess the nature and characteristics of their financial assets and liabilities, evaluate credit risks, and estimate potential losses to ensure the accuracy and reliability of their financial statements.
| 5. Why are the accompanying notes important in financial statements for banks? | |
Ans. The accompanying notes in financial statements for banks provide additional information and explanations about the bank's accounting policies, significant accounting estimates, and other relevant disclosures. These notes help users of financial statements understand the basis of preparation, key assumptions, and judgments made by management. They provide details about the bank's risk exposures, contingent liabilities, related party transactions, and other significant events that may impact the bank's financial position and performance. The accompanying notes enhance the transparency and completeness of the financial statements.
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