Final Accounts of Banking Companies: Jaiib/DBF Paper 2, (Module C), Unit 4

Final Accounts of Banking Companies: Jaiib/DBF Paper 2 (Module C) Unit 4

Dear bankers,

As we all know that  is Final Accounts of Banking Companies for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Final Accounts of Banking Companies (Unit-4), Final account (Module C), Accounting Finance for Bankers-Paper 2.

♦Introduction

  • A banking company means and includes any company which carries on the business or which transacts business of banking in India. A banking company is generally governed by the provisions of the Companies Act, 2013 and specifically by the Banking Regulation Act. The Banking Regulation Act of 1949 came into force on 16th March, 1949 as a result of the long –felt need to regulate the banking business in India and protect the interests of number of depositors.

♦Functions of a Bank

  • Banking has been defined by Section 5 of the Banking Regulation Act and means: accepting of deposits of money from the public, for purpose of lending or investment and the deposit are repayable on demand or otherwise by cheque, draft, order etc.

♦Requirements of Banking Companies as to Accounts and Audit

Preparation of financial Statements and Accounting Data -Companies Act 2013, Section 29

  • Form A- Balance sheet
  • Form B- Profit & Loss Account
  • The Govt. has notified that account of the banking companies shall be closed on 31st March every year as against 31st December earlier.

Signatures – Financial statements of banking companies incorporated in India should be signed by the manager or principal officer of the banking company- Companies Act 2013, Section 29

Audit (Section 30):An audit is an independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form

Submission of Accounts (Section 31 and 32): Three copies of the balance sheet and profit and loss account prepared under Section 29 together with auditor’s report under section 30 must be submitted to the RBI within 3 months from the end of the period to which they refer. However, it can be extended up to a further period of 3 months by RBI (Section 31).

Section 32 of the Act requires a banking company (but not other types of banks)to furnish 3 copies of its annual accounts and auditor’s report there on the Registrar of Companies at the same time when it furnished these documents to the RBI.

Publication of Accounts: Rule 15 of the Banking Regulating (Companies) Rules, 1949. Publication of accounts- within 6 months

♦Features of Accounting Systems of Banks

  • Bankers’ Book: According to Section 2 (3) of the Bankers’ Books Evidence Act, ‘Bankers Books’ included ledgers, day book, cash book, account books and all other books used in the ordinary business of a bank. Generally the following books are maintained by bank to keep up to date records of its customers.
  • Cash Book: All cash receipt and payments are recorded in the receiving cashier’s cash book and paying cashier’s cash book.
  • Ledger Book: Maintained Current Account Ledger, FD accounts Ledger, RD accounts Ledger, Loan Ledger etc
  • Other Book: Clearing Register, Securities Register, Draft Register, Bills for collection Register, Safe deposit vault Register, Dishonored cheques Register

♦Balance sheet-Form A

  • Schedule 1: Capital
  • Schedule 2: Reserves & surplus
  • Schedule 3: Deposits
  • Schedule 4: Borrowings
  • Schedule 5: Other Liabilities & Provisions
  • Schedule 6: Cash & Bank Bal. RBI
  • Schedule 7: Balances with Banks & Money at call and Short Notice
  • Schedule 8: Investments
  • Schedule 9: Advances
  • Schedule 10: Fixed Assets
  • Schedule 11: Other Assets
  • Schedule 12: Contingent Liabilities
  • (i) Claims against bank not acknowledged as debts
  • (ii) Liability for partly paid shares
  • (iii) Liability on account of outstanding forward exchange contracts
  • (iv) Acceptances ,endorsement & other obligations
  • (v) Other items for which bank is contingently liable.

♦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
Significant Accounting Policies Schedule.17
Notes forming part of Accounts Schedule.18

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 )
  • income -Godown rent

Important points

  • 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
  • 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 and Other

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.-Unsecured – 25%, Secured – 15%
  • Doubtful – Unsecured – 100%, Secured – upto 1year-25%, 1 to 3yrs-40%, more than 3 years – 100%
  • Loss assets-100%

♦SLR & Non SLR Deposit

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

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