Advanced Financial Accounting-munotes

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ACCOUNTING AND STATUTORY
REQUIREMENTS OF BANKING
COMPANIES

Unit structure

of Ba nking Companies:

As per section 6 of the Act, banking companies may engage
in the following business in addition to their usual banking business.
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1.1. Introduction
1.2. Important Accounting provis ions of Bankin g Regulation
Act 1949.
1.3. Books of Accounts
1.4. Provisioning of Non-Performing Assets
1.5. Final Accounts
1.6. Some important transactions
1.7. Illustrations
1.8. Exercises
1.1. INTRODUCTION

1.1.1 Meaning of Banking Companies:

A b a n k i s a c o m m e r c i a l i n s t i t u t i o n , p e r m i t t e d t o
accept, collect, transfer, lend and exchange money and claims
to money both the domestically and inter nationally and
thereby conduct smooth banking activities.

1.1.2. Definition:

B a n k i n g c o m p a n i e s a r e g o v e r n e d by the Banking Regulation
Act of 1949 and also subject to the companies act. 1956.

A c c o r d i n g t o B a n k i n g R e g u lation act, 1949 Banking means –
“The accepting, for the purpose of lending or investment, of deposit
of money from the public repayable on demand or otherwise
and withdraw able by cheque, dr aft, order or otherwise.’

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1. The borrowing, raising or ta king up on money, the lending or
advancing of money eit her upon or without security, the drawing,
making, accepting, discounting, buying, selling, collecting and
dealing in bills of e xchange, ‘hundies’, promissory notes, drafts,
bills of lading, railways receipt, warrants, debentures, certificates,
scrip’s and other instruments and secu rities whether transferable or
negotiable or not; granting and issuing of letters of credit, traveller’s
cheques and circular notes; the buying, selling and dealing in
bullion and specie; the buying and selling of foreign exchange
including foreign bank notes; t he acquiring, holding, issuing on
commission, underwriting and dealin g in stock, funds, shares,
debentures, debenture stock bonds, obligations, securities and
investments of all kinds; the pur chasing and selling of bonds, scrips
or other forms of securities on behalf of constituents or other, the
negotiating of loans and advances; t he receiving of all kinds of
bonds, scrips or valuables on depos it or for safe custody or
otherwise; the providi ng of safe deposit vaul ts; the collecting and
transmitting of money and securities.

2. Acting as agents for any Governm ent or local au thority or any
other person or persons; the carry ing on of agency business of any
description including the clearing and forwarding of goods, giving of
receipts and discharges and otherwise acting as on attorney on
behalf of customers but excluding the business of (managing agent
or secretary and treasurer) of a company.

3. Contracting for public and pr ivate loans and negotiating and
issuing the same.

4. The effecting, insuring, guaran terring, underwriting, participating
in managing and carrying out of any iss ue, public or private of state,
municipal or other loans or of s h a r e s , s t o c k , d e b e n t u r e s o r
debenture stock of any Company Cor poration or association and of
the lending of money for the pur pose of any such issue.

5. Carrying on and transacting every kind of guarantee and
indemnity business.

6. Managing, selling and realizi ng any property which may come
into the possession of the com pany in satisfaction or part
satisfaction of any of its claims.

7. Acquiring and holding and generally dealing with any property or
any right, title or interest in any such property which may form the
security or part of the security for any loans or advances which may
be connected with any such security.

8. Undertaking and executing trusts.
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9. Undertaking the administration of estates as executor, trustee or
otherwise.

10. Establishing and supporting or ai ding in the establishment and
support of associations, instituti ons, funds, trusts and conveniences
calculated to benefit em ployees or ex-employees of the company or
the dependents or connections of such persons; granting pensions
and allowances and making pay ments towards
insurance; subscribing to or guaranteeing m oneys for charitable or
benevolent objects or for any exhibition or for any public,
general or useful object.

11. The acquisition, construction maintenance and alteration of any
building or works necessary or c onvenient for the purpose of
the company.

12. Selling, improving, managing, developing, exchanging, leasing,
mortgaging, disposing of or turn ing into account or
otherwise dealing with all or any part of the property
and rights of the company.

13. Acquiring and underta king the whole or any part of the business
of any person or company, when such business is of a
nature enumerated or described in section 6.

14. Doing all such other things as ar e incidental or conclusion to the
promotion or advancement of the business of the company.

15. Any other form of business wh ich the central Government may
by notification in the official Ga zette, specify as a form of business
in which it is lawful for a banking company to engage.

N o B a n k i n g C o m p a n y s h a l l e n g age in any form of business
other than those referred to in section 6.

1.1.4 Restrictions on Business:

T h e B a n k i n g C o m p a n i e s a r e r e s t r i c t e d f r o m
conducting certain activities.

A b a n k c a n n o t d i r e c t l y o r i ndirectly deal in the buying
or selling or bartering of goods, ex cept in connection
with the realization of security given to or held by it, or engage in
any trade or buy or sell of barter goods f o r o t h e r s
otherwise than in connection with bills of exchange, immovable
property, except that required for its own use, however acquired,
m u s t b e d i s p o s e d o f within seven years from the date of
acquisition.

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Assets:

The case in which the custom er to whom a bank sanctioned
loan against some security and if he fails to repay the same, the
bank decides to acquire such property kept as security to satisfy its
claim. Such property or assets termed as ‘Non-Banking Assets’.
These Assets are exhibited in schedule 11 – “Other Assets”.

Capital a nd reserves – Section 11.

A c c o r d i n g t o t h e p r o v i s i o n o f section 11 (2) of the Banking
Regulation Act 1949 the following are the limits imposed on value
of paid up Capital and Reserves of a banking Company.

1) In the case of Banking Company incorporated outside India.
If it has a place or places of bus iness in the city of Bombay or
Calcutta or both Rs. 20 lakhs.
I f t h e p l a c e s o f b u s i n e s s a r e other than Bombay or Calcutta
Rs. 15 lakhs. In addition 20% of t he profits earned in India must be
added to the sums mentioned above.

2) In the case of a banking co mpany incorporated in India.

a) If it has places of business in more than one state and it has
a place or places of business in Bombay or Calcutta or both
Rs. 10 lakhs.
b) It is has places of business in more than one state but not in
Bombay or Calcutta Rs. 5 lakhs.
c) If it has places of business in one state but not in Bombay or
Calcutta. Rs. 1 lakhs in respect of its principle place plus Rs.
10,000 for each of its other places of bus iness in the same
district and Rs. 25,000 in res pect of each place of business
outside the district. The total n eed not exceed Rs. 5 lakhs. In
case there is only one place of business Rs. 50,000.

(In case of companies, which have commenced business after the
commencement of the Banking Co mpanies (Amendment) Act of
1962, a minimum of Rs. 5 lakhs is required)

d) If it has all its places of bus iness in one state / Rs. 5 lakhs
and if the places of business are also in / plus Rs. 25,000
Bombay or Calcutta. / In respect of each place of business
situated outside the city of Bombay or Calcutta. The total
need not exceed Rs. 10 lakhs.
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1.1.5 Non-Banking
1.2. IMPORTANT ACCOUNT ING PROVISIONS
OF BANKING REGULATION ACT 1949.

1.2.1 Minimum

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A B a n k c a n n o t
i) grant loans and advances on th e security of its own shares
and
ii) grant or agree to grant loan or advance to or on behalf of
a) Any of its directors;
b) Any firm in which any of its di rectors is interested as partner,
manager or gurantor; 1.2.2 Restriction on commission Brokerage, Discount, etc. on
sale of shares-section B:
Reserve – Section 17:

S e c t i o n 1 7 o f t h e a c t l a y s d o w n t h a t e v e r y b a n k i n g
company should create a reserve fund by transferring to it at least
20 percent of its annual profit as disclosed by its profit and loss
account before any declaration of dividend, such reserve is
known as statutory Reserve. The transfer of profit to r e s e r v e f u n d
s h o u l d b e c o n t i n u e d even after the accumulated amount of
reserve fund and share premium account together exceed
its paid up capital. Unless the central government grant
on ex emption in this regard on the recommendation of
Reserve Bank of India.

1.2.5 Cash Reserves – Section 18:

E v e r y B a n k i n g C o m p a n y r e q u i r e s t o m a i n t a i n a
balance equal to 3 percent of its time and demand liabilities with
RBI (a non scheduled bank has to keep similar balances
either in cash or deposit with RBI)

1.2.6 Restrictions on lo ans and Advances –section 20
5

A B a n k i n g c o m p a n y i s n o t a l l o w e d t o p a y d i r e c t l y
o r indirectly commission, Brokerage, Discount or remuneration
in any form in respect of any shares issued by it, any amount
exceeding two and one-half person of the paid up value of the said
shares.

1.2.3 Restriction on payment of dividend – section 15:

A Banking company shall not pay dividend unless all of its
capitalized expenses (including preliminary expenses, organization
expenses, share selling commission, Brokerage, amount of
losses incurred and any other item. Of expenditure not
represented by tangible assets) have been completely written-off.
However, a banking company may pay dividend on its shares
without writing off.
1.2.4 Statutory
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c) Any company of which any of i t s d i r e c t o r s i s a d i r e c t o r
manager, employee or guarantor o r i n w h i c h h e h o l d s
substantial interest; or
d) Any individual in respect of whom any of its directors is a
partner or guarantor.



In order to have immediate en try of voluminous transaction
and enables continuous internal check on the record of these
transactions, Banks are required to maintain subsidiary books
along with its principal books of accounts.

A) Subsidiary books
i. Receiving cashier’s counter cash book;
ii. Paying cashier’s counter cash book;
iii. Current accounts ledger.
iv. Savings bank accounts ledger
v. Fixed deposit accounts ledger
vi. Investments Ledger
vii. Loans Ledger
viii. Bills discounted and purchased ledger
ix. Customer’s acceptan ces endorsements and guarantee
ledger

B) Principal Books
i. Cash book : It records all cash transactions
ii. General Leger : It contains c ontrol Accounts of all subsidiary
ledgers and different assets and liabilities account


Meaning:
T h e ‘ N o n - P e r f o r m i n g A s s e t s ’ r e f e r s t o t h o s e a s s e t s w h i c h
fails to generate expected returns to the bank due to borrowers
default in making repayment.

In accordance with the inte rnational practice and the
directives of RBI, the bank sh ould recognized income on Non-
Performing Assets (NPA) when it is actually received and not on
accrual basis.
1.3. BOOKS OF ACCOUNTS
1.4. PROVISIONING OF NON-PERFORMING ASSETS 6
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S i m i l a r l y , t h e R B I h a s a c c e p t ed the definition of a NPA given
by Narasimham committee from March 1995 onwards –

‘ a s a n a d v a n c e w h e r e , a s o n t h e bank’s balance sheet date,
(a) interest on a term loan account is past due or (b) a cash credit /
overdraft account remains out of order or (c) a bill purchased /
discounted is unpaid or overdue or (d) any amount to be received in
respect of any other account re mains past due, for a period more
than 180 days. (e) in respect of agricultural finance / advance (eg
crop loans) interest and / or in stallment of principal remains
overdue for two harvest seasons but for a period not exceeding two
half years. The period of 180 days has been reduced to 90 days
effective from March 31, 2004.

A ‘ p a s t d u e ’ a c c o u n t h a s b e e n d e f i n e d a s a n a m o u n t w h i c h
remains outstanding 30 days beyond the due date.

Assets classification and provisioning

I n o r d e r t o m a k e a d e q u a t e p r o v i s i o n s , a s s e t s h a v e b e e n
classified as follows:
i. Standard assets – These are the assets which does not
disclose any problems and does not carry more than normal
risk attached to the business ther efore no provision is to be
made against them.

ii. Substandard assets – These assets exhibit problems and
would include assets classified as non-performing for a
period not exceeding two years. Hence the pr ovision is to be
made at the rate of 10 perc ent of the total outstanding
amount of substandard assets.

iii. Doubtful assets – these are the assets which remain non
performing for a period exceedin g two years and would also
include loans in respect of wh ich installments are overdue
for a period exceeding two years.

The provision for doubtful assets as follows:

Period for which the advance Provision requirements (%)
Has been considered
As doubtful

Upto one year 20
One to three years 30
More than three years 50
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iv. Loss assets – Loss assets are those assets where the loss
has been identified but the amounts have not been return
off.

Illustration
E x e b a n k l t d . h a v i n g t h e f o l l o w i n g a d v a n c e s a s o n 3 1st
March 2009 and provision is to be made against them.


B i l l s P u r c h a s e d
and Discounted Cash credit,
overdraft Term
loans
i) Standard Assets
ii) Sub-standard Assets
iii) Doubtful Assets:
- upto one year
- One to 3 years
- More than 3 years
iv) Loss Assets 5,150
4,000
--
--
--4,925
1,500

500
1,800
1,275
350 2,375
1,000

1,800
700
550
225
9 , 1 5 0 1 0 , 3 5 0 6 , 6 5 0

Solution

A m o u n t
(Rs.) % of Provision Amount of
Provision (Rs)
i) Standard Assets
ii) Sub-standard Assets
iii) Doubtful Assets:
- upto one year
- One to 3years
- More than 3 years
iv) Loss Assets 12,450
6,500
2,300
2,500
1,825
575Nil
10%
20%
30%
50%
100%Nil
650

460
750
912.5
575
Total Provision on Advances 3,347.5


T h e B a n k i n g R e g u l a t i o n a c t , 1 9 4 9 p r e s c r i b e s f o r m a t s o f
preparing final accounts of the Banking companies. The third
schedule of section 29 gives forms ‘A’ for the balance sheet and
Form ‘B’ for Profit and loss account. The balance sheet consists of
total 12 schedules. Schedule 1 to sc hedule 5 depicts capital and
liabilities and schedule 6 to sche dule 11 shows Assets of the bank
and schedule 12 shows contin gent liabilities and t here is no specific
schedule prescribes for bills for collection.






1.5. FINAL ACCOUNTS 8
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THE THIRD SCHEDULE
(See Section 29)
Form ‘A’
FORM OF BALANCE SHEET

Balance Sheet of……………… (here enter the name of the Banking Company)
Balance Sheet as on 31st March __________(year) (000’s omitted)
Schedule
No. As on 31.3……
(Current Year) As on 31.3…..
(Previous Year)


















Capital & Liabilities
Capital
Reserves & Surplus
Deposits
Borrowings
Other Liabilities and
Provisions
Total
Assets
Cash and balance with
Reserve Bank of India
Balances with banks and
money at call and short
notice
Investments
Advances
Fixed Assets
Other Assets
Total
Contingent liabilities
Bills for collection 1
2
3
4
5



6

7


8
9
10
11

12


Form ‘B’
FORM OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH

(000’s omitted)
Schedule
No. Year ended 31.3…
(Current Year) Year ended 31.3…
(Previous Year)

13
14

15
16








I. Income
Interest earned
Other income
Total
II. Expenditure
Interest expended
Operating expenses
Provisions and contingencies
Total
III. Profit / Loss
Net profit / Loss (-) for the year
Profit / Loss (-) brought forward
Total
IV. Appropriations
Transfer to statutory reserves
Transfer to other reserves
Transfer to Government /
Proposed dividend
Balance carried over to Balance
Sheet
Total 9
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NOTE: 1. The total income includes income of foreign branches of Rs.______
2 . T h e t o t a l e x p e n d i t u r e i n c l u d e s e x p e n d iture of foreign branches at Rs. _____
3 . S u r p l u s / d e f i c i t o f f o r e i g n b r a n c h e s R s . _ _ _ _ _ _

SCHEDULE 1 --- CAPITAL

As on 31.3….
(Current Year) As on 31.3…
(Previous Year)














I. For Nationalized Banks
Capital (Fully owned by Central
Government)

II. For Banks Incorporated Outside
India
Capital
(The amount brought in by banks by
way of start-up capital as prescribed by
RBI should be shown under this head)
Amount of deposit with the RBI under
Section 11(2) of Banking Regulation
Act, 1949
Total
III. For Other Banks
Authorized Capital
……. shares of Rs……… each
Issued Capital
……. shares of Rs……… each
Subscribed Capital
……. shares of Rs……… each
Called-up Capital
……. shares of Rs……… each
Less: Calls unpaid
Add: Forfeited shares

SCHEDULE 2 – RESERVES & SURPLUS

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)
















I. Statutory Reserves
Opening Balance
Additions during the year
Deductions during the year
II. Capital Reserves
Opening Balance
Additions during the year
Deductions during the year
III. Shares Premium
Opening Balance
Additions during the year
Deductions during the year
IV. Revenue and other Reserves
Opening Balance
Additions during the year
Deductions during the year
V. Balance in Profit and Loss Account
Total (I + II + III + IV + V) 10
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SCHEDULE 3 – DEPOSITS

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)









A. I. Demand Deposits
i) From Banks
ii) From Banks
II. Savings Bank Deposits
III. Term Deposits
i) From banks
ii) From others
Total (I + II + III)
B. i) Deposits of branches in India
ii) Deposits of branches outside India
Total

SCHEDULE 4 – BORROWINGS

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)
I. Borrowings in India
i) Reserve Bank of India
ii) Other banks
iii) Other institut ions and agencies
II. Borrowings outside India
Total (I + II)
Secured borrowings included in I & II
above – Rs.

SCHEDULE 5 – OTHER LIABILITIES AND PROVISIONS

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)
I. Bills payable
II. Inter-office adjustments (net)
III. Interest accrued
IV. Others (including provisions)
Total

SCHEDULE 6 – CASH AND BALANCES WITH RESERVE BANK
OF India

As on 31.3…
(Current Year) As on 31.3…
(Previous Year)
I. Cash in hand (including foreign
currency notes)
II. Balances with RBI
(i) in Current Account
(ii) in Other Accounts
Total (I + II)



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SCHEDULE 7 – BALANCES WITH BANKS & MONEY AT CALL
& SHORT NOTICE

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)











I. In India
(i) Balances with banks
(a) in Current Accounts
b) in Other Deposit Accounts
(ii) Money at call and short notice
a) With banks
b) With other institutions
Total
II. Outside India
(i) in Current Accounts
(ii) in Other Deposit Accounts
(iii) Money at call and short notice
Total

Grand Total (I + II)

SCHEDULE 8 – INVESTMENTS

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)











I. Investments in India in
i) Government securities
ii) Other approved securities
iii) shares
iv) Debentures and Bonds
v) Subsidiaries and / or joint ventures
vi) Others (to be specified
Total
II. Investments outside India in
i) Government securities (including local
authorities)
ii) Subsidiaries and / or joint ventures
abroad
iii) Other investments (to be specified)
Total
Grand Total (I + II)

SCHEDULE 9 – ADVANCES

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)
A. i) Bills purchased and discounted
ii) Cash credits, overdrafts and loans
repayable on demand
iii) Term loans
Total
B. i) Secured by tangible assets
ii) Covered by Bank / Government
guarantees
iii) Unsecured
Total 12
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C. I. Advances in India
i) Priority Sectors
ii) Public Sector
iii) Banks
iv) Others
Total
II. Advances outside India
i) Due from banks
ii) Due from others
a) Bills purchased and discounted
b) Syndicated loans
c) Others
Total
Grand Total (C. I. + C. II.)

SCHEDULE 10 – FIXED ASSETS

As on 31.3…
(Current Year) As on 31.3…
(Previous Year)
I. Premises
At cost as on 31st March of the preceding
year
Additions during the year
Deductions during the year
Depreciation to date
II. Other Fixed Assets (including
furniture and fixtures)
At cost as on 31st March of the preceding
year
Additions during the year
Deductions during the year
Depreciation to date
Total (I + II)

SCHEDULE 11 – OTHER ASSETS

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)
I. Inter-office adjustments (net)
II. Interest accrued
III. Tax paid in advance / tax deducted at
source
IV. Stationery and stamps
V. Non-banking assets acquired in
satisfaction of claims
VI. Others @
Total

@ In case there is any unadjust ed balance of loss, the same may
be shown under this item with appropriate foot-note.



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SCHEDULE 12 – CONTINGENT LIABILITIES

As on 31.3….
(Current Year) As on 31.3….
(Previous Year)
I. Claims against the bank not
acknowledged as debts
II. Liability for partly paid investment
III. Liability on account of outstanding
forward exchange contracts
IV. Guarantee given on behalf of
constitutents
a) In India
b) Outside India
V. Acceptances, endor sements and, other
obligations
VI. Other items for which the bank is
contingently liable

Total

SCHEDULE 13 – INTEREST EARNED

Year ended 31.3…
(Current Year) Year ended 31.3…
(Previous Year)




I. Interest / discount on advances / bills
II. Income on investments
III. Interest on balances with Reserve
Bank of India and other inter-bank funds
IV. Others
Total

SCHEDULE 14 – OTHER INCOME

Year ended 31.3…
(Current Year) Year ended 31.3…
(Previous Year)















I. Commission, exchange and brokerage
II. Profit on sale of investments
Less: Loss on sale of investments
III. Profit on revaluation of investments
Less: Loss on revaluation of
investments
IV. Profit on sale of land, buildings and
other assets
Less: Loss on sale of land, buildings
and other assets.
V. Profit on exchange transactions
Less: Loss on exchange
transactions
VI. Income earned by way of dividends
etc. from subsidiaries / companies and /
or joint ventures abroad / in India
VII. Miscellaneous Income
Total

Note : Under items II to V loss figur es may be shown in brackets
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SCHEDULE 15 – INTEREST EXPENDED

Year ended 31.3…
(Current Year) Year ended 31.3…
(Previous Year)



I. Interest on deposits
II. Interest on Reserve Bank of India /
inter-bank borrowings
III. Others
Total

SCHEDULE 16 – OPERATING EXPENSES

Year ended 31.3…
(Current Year) Year ended 31.3…
(Previous Year)














I. Payments to and provisions for
employees
II. Rent, taxes and lighting
III. Printing and stationery
IV. Advertisement and publicity
V. Depreciation on bank’s property
VI. Directors’ fees, allowances and
expenses
VII. Auditor’ fees and expenses (including
branch auditors’ fees and expenses)
VII. Law charges
IX. Postages, telegrams, telephone, etc.
X. Repairs and maintenance
XI. Insurance
XII. Other expenditure
Total


GUIDELINES OF RBI FOR COMPILATION OF FINANCIAL
STATEMENTS BALANCE SHEET


Item Schedule Coverage Notes and instructions for
compilation
(1) (2) (3) (4)
Capital 1 Nationalized
Banks
Capital (fully
owned by
Central
Government)
The capital owned by
Central Government as
on the date of the
Balance Sheet, including
contribution from
Government, if any, for
participating in World
Bank, Projects, should be
shown. 15
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B a n k i n g
Companies
incorporated
outside India (i) The amount brought in
by banks by way of start-
up capital as prescribed
by RBI, should be shown
under this head.
(ii) The amount or
deposits kept with RBI
under sub-section 2 of
Section 11 of the Banking
Regulation Act, 1949
should also be shown.
Other Banks
(Indian)
Authorized
Capital
(… shares of
Rs… each)
Issued Capital
(… Shares of
Rs... Each)
Subscribed
Capital
(… Shares of
Rs…. Each)
Called-up
Capital
(… Shares of
Rs… each)
Less: Calls
unpaid Add:
Forfeited
shares: Paid-
up Capital Authorized, Issued,
Subscribed, Called-up
Capital should be given
separately. Calls-in-
arrears will be deducted
from Called-up Capital
while the paid-up value of
forfeited shares should be
added, thus arriving at the
paid-up capital. The
necessary items which
can be combined should
be shown under one
head, for instance,
“Issued and Subscribed
Capital”.

Notes: General
The changes in the above
items, if any, during the
years, say, fresh
contribution made by the
Government, fresh issue
of capital, capitalization of
reserves, etc., may be
explained in the notes. 16
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Reserves
and
Surplus 2 (I) Statutory
Reserves Reserves created in
terms of Section 17 or
another section of
Banking Regulation Act,
must be separately
disclosed.
(II) Capital
Reserves The expression ‘capital
reserve’ shall not include
any amount regarded as
free for distribution
through the Profit and
Loss Account. Surplus on
revaluation should be
treated as Capital
Reserves. Surplus on
translation of the financial
statements of foreign
branches (which includes
fixed assets also) is not a
revaluation reserve.
(III) Share
Premium Premium on issue of
share capital may be
shown separately under
this head.
(IV) Revenue
and other
Reserves The expression ‘Revenue
Reserve’ shall mean any
reserve other than those
separately classified. This
expression ‘reserve’ shall
not include any amount,
written-off or retained by
way of providing for
depreciation, renewals or
diminution in value of
assets or retained by way
of providing for any
known liability.
(V) Balance
of Profit Includes balance of profit
after appropriation. In
case of loss the balance
may be shown as a
deduction. 17
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Page 18

Notes : General
Movement in various
categories of reserves
should be shown as
indicated in the schedule.
Deposi
ts 3 A. (I) Demand
Deposits
(i) from banks
(ii) from others Includes all bank deposits
repayable on demand.
Include all demand
deposits of the non-
banking sectors.
Credit balances in
overdrafts, cash credit
accounts, deposits
payable at call, overdue
deposits, inoperative
current accounts,
matured time deposits
and cash certificates,
certificate of deposits, etc.
are to be included under
this category.
(ii) Saving
Bank
Deposits Includes all savings bank
deposits (including
inoperative savings bank
accounts).
(III) Term
Deposits
(i) from banks
(ii) from others Includes all types of bank
deposits repayable after
specified term.
Includes all types of
deposits of the non-
banking sector, repayable
after a specified term.
Fixed deposits,
cumulative and recurring
deposits, annuity
deposits, deposits
mobilized under various
schemes, ordinary staff
deposits, foreign currency
non-resident deposit
accounts, etc., are to be
included under this
category. 18
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Page 19

B .
(i) Deposits
of branches
in India
(ii) Deposits
of branches
outside India The total of these two
items will agree with the
total deposits.

Notes : General
(a) Interest payable on
deposits which is accrued
but not due should not be
included but shown under
other liabilities.
b) Matured time deposits
and cash certificates, etc.,
should be treated as
demand deposits.
c) Deposits under special
schemes should be
included under the term
deposits, if they are not
payable on demand.
When such deposits have
matured for payment they
should be shown under
demand deposits.
d) Deposits from banks
will include deposits from
the banking system in
India, co-operative banks,
foreign banks, which may
or may not have presence
in India.
Borrow
ings 4 (I)
Borrowings
in India
(i) Reserve
Bank of India
(II) Other
Banks


(iii) Other
institutions
and agencies. Includes borrowing /
refinance obtained from
Reserve Bank of India

Includes borrowings /
refinance obtained from
commercial banks
(including co-operative
banks).
Includes borrowings /
refinance obtained from
industrial Development
Bank of India, Export-
Import of Bank of India, 19
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Page 20

National Bank for
Agriculture and Rural
Development and other
institutions, agencies
(including liability against
participation certificates, if
any).
(II)
Borrowings
outside India Includes borrowings of
Indian branches abroad
as well as borrowings of
foreign branches.
Secured
borrowings
included
above This item will be shown
separately. Includes
secured borrowings /
refinance in India and
outside India.
Note: General

(i) The total of I and II will
agree with the total
borrowings shown in the
Balance Sheet.
(ii) Inter-office
transactions should not
be shown as borrowings.

(iii) Funds raised by
foreign branches by way
of certificate of deposits,
notes, bonds, etc., should
be classified depending
upon documentation, as
‘deposits’, ‘ borrowings’,
etc.
(iv) Refinance obtained
by banks from Reserve
Bank of India and various
institutions are being
brought under the head
‘Borrowings’. Hence,
advances will be shown
at the gross amount on
the assets side. 20
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Page 21

Other
Liabiliti
es and
Provisi
ons 5 I.Bills
Payable Includes drafts,
telegraphic transfers,
traveler cheques, mail
transfers payable, pay
slips, bankers cheques
and other miscellaneous
items.
II. Inter-office
Adjustments The inter-office
adjustments balance, if
the credit should be
shown under this head.
Only net position of inter-
office accounts, inland as
well as foreign, should be
shown here.
III.Interest
Accrued Includes interest accrued
but not due on deposits
and borrowings.
IV.Others
(including
provisions) Includes net provision for
income tax and other
taxes like interest tax
(less advance payment,
tax deducted at source,
etc.,) surplus in aggregate
in provisions for
depreciation in securities,
contingency funds which
are not disclosed under
any of the major heads
such as unclaimed
dividend, provisions and
funds kept for specific
purpose, unexpired
discount, outstanding
charges like rent,
conveyance, etc. Certain
types of deposits like staff
security deposits, margin
deposits, etc. where the
repayment is not free,
should also be included
under this head.

21
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Page 22

Notes: General
i) For arriving at the net
balance of inter-office
adjustments all connected
inter-office accounts
should be aggregated
and the net balance
should only be shown,
representing mostly items
in transit and unadjusted
items.
(ii) the interest accruing
on all deposits, whether
the payment is due or not,
should be treated as a
liability.
iii) it is proposed to show
only pure deposits under
the head ‘deposits’, and
hence, all surplus
provisions for bad and
doubtful debts,
contingency funds, secret
reserves, etc., which are
not netted off against the
relative assets, should be
brought under the head
‘others’ (including
provisions).
Cash
and
Balanc
es with
the
Reserv
e Bank
of India 6 I. Cash in
hand
(including
foreign
currency
notes)
II. Balance
with RBI
i) In current
Account
ii) in other
Accounts Includes cash in hand,
including foreign currency
notes and also of foreign
branches in the case of
banks having such
branches. 22
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Page 23

Balanc
e with
banks
and
money
at call
and
short
notice 7 I. In India
i) Balance with
Banks
a) in current
accounts
b) in other
deposit
accounts Includes all balance with
banks in India (including
co-operative banks).
Balances in current
accounts and deposit
accounts should be
shown separately.
ii) Money at
call and short
notice
a) with banks
b) with other
institutions Includes deposits
repayable within 15 days
notice, lent in the inter-
bank call money market.

II. Outside
India
i) Current
accounts
ii) Deposits Includes balances held by
foreign branches and
balances held by Indian
branches of the banks
outside India. Balance
held with foreign
branches by other
branches of the bank,
should not show under
this head but should be
included in the inter-
branch accounts. The
amounts held in ‘current
accounts’ and ‘deposit
accounts should be
shown separately.
iii) Money at
call and short
notice Includes deposits usually
classified in foreign
currencies as money at
call and short notice.
Invest
ment 8 I. Investment
in India
i) Government
securities Includes Central and
State Government
securities and
Government treasury
bills. These securities
should be at the book
value. However, the
difference between the 23
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Page 24

book value and market
value should be given in
the notes to the Balance
Sheet.
ii) Other
approved
securities Securities other than
Government securities,
which according to the
Banking Regulation Act,
1949, are treated as
approved securities,
should be included here.
iii) Shares Investment in shares of
companies and
corporations not included
in item (ii) should be
included here.
iv) Debentures
and Bonds Investments in
debentures and bonds of
Companies, Corporations
not included in item (ii)
should be included here.
v) Investments
in subsidiaries
/ joint venturesInvestment in subsidiary /
joint ventures (including
R. R. Bs) should be in
included here.
vi) Others Includes general
investments, if any, like
gold, commercial paper
and other instruments in
the nature of shares /
debentures / bonds.
II. Investment
outside India
i) Government
securities
(including
local
authorities)
ii) Subsidiaries
and / or joint
ventures
abroad

All foreign Government
securities including
securities issued by local
authorities may be
classified under this head.
All investments made in
the share capital of
subsidiaries, floated
outside India and / or joint 24
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Page 25

iii) Others ventures abroad, should
be classified under this
head.
All other investments
outside India may be
shown under this head.
Advanc
es 9 A. i) Bills
purchased
and
discounted
ii) Cash
credits,
overdrafts and
loans
repayable on
demand
iii) Terms
loans In classification under
Section ‘A’, all
outstanding – in India as
well as outside – less
provisions made, will be
classified under three
heads as indicated, and
both secured and
unsecured advances will
be included under these
heads including overdue
installments.
B. i) Secured
by tangible
assets All advances or part of
advances which are
secured by tangible
assets may be shown
here. The item will include
advances in India and
outside India.
ii) Covered by
Bank /
Government
Guarantee Advances in India and
outside India to the extent
they are covered by
guarantees of Indian and
foreign governments and
Indian and foreign banks
and DICGC & ECGC are
to be included.
iii) Unsecured All advances not
classified under (i) and (ii)
will be included here.
Total of ‘A’ should tally
with the total of ‘B’.
C.I. Advances
in India
i) Priority
sectors Advances should be
broadly classified into
‘Advances in India’ and
‘Advances outside India’.
Advances in India will be 25
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Page 26

ii)Public sector
iii) Banks
iv) Others further classified on the
sartorial basis as
indicated.
C.II.
Advances
outside India
i) Due from
banks
ii) Due from
others
a) Bills
purchased
and
discounted
b) Syndicated
loans
c) Others Advances to sectors
which for the time being
are classified as priority
sectors according to the
instructions of the
Reserve Bank are to be
classified under the head
‘Priority sectors’. Such
advances should be
excluded from the item (ii)
i.e., advance to public
sector. Advances to
Central and State
Government and other
Government undertakings
including Government
companies and
corporations, which are,
according to the statutes,
to be treated as Public
sectors companies, are to
be included in the
category ‘Public sector’.
All advances to the
banking sector including
co-operative banks, will
come under the head
‘Banks’. All the remaining
advances will be included
under the head ‘Others’
and typically this category
will include non-priority
advances to the private,
joint and co-operative
sectors
Note: General
i) The gross amount of
advances including
refinance and rediscounts
but excluding provisions
made to the satisfaction
of auditors should be
shown as advances. 26
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Page 27

ii) Term loans will be
loans not repayable on
demand.
iii) Consortium advances
would be shown net of
share from other
participating banks /
institutions.
Fixed
Assets 10 I. Premises
i) At cost as
on 31st M a r c h
of the
preceding
year
ii) Addition
during the
year
iii)
Deductions
during the
year
iv)
Depreciation
to due Premises wholly or partly
owned by the banking
company for the purpose
of business, including
residential premises
should be shown against
‘premises’. In the case of
premises and other fixed
assets, the previous
balance, additions there
to, deductions there from,
during the year, and also
the total depreciation
written-off should be
shown. Where sums have
been written off on
reduction of capital and
revaluation of assets,
every Balances Sheet
after the first Balance
Sheet, subsequent to the
reduction or revaluation
should show the revised
figures for a period of five
years, with the date and
amount of revision made.
II.Other Fixed
Assets
(including
furniture and
fixtures)
i) At cost on
31st M a r c h o f
the preceding
year

Motor vehicles and all
other fixed assets other
than premises but
including furniture and
fixtures should be shown
under this head. 27
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Page 28

ii)Additions
during the
year
iii) deductions
during the
year
iv) Depreciation
to date
Other
Assets 11 I. Inter-office
Adjustments
(net) The inter-office
adjustment balance, if in
debit, should be shown
under this head. Only net
position of inter-office
accounts, inland as well
as foreign, should be
shown here. For arriving
at the net balance of
inter-office adjustment
accounts, all connected
inter-office accounts
should be aggregated
and the net balance, if in
debit, only should be
shown, representing
monthly items in transit
and unadjusted items.
II.Interest
Accrued
Interest accrued but not
due or investments and,
advance and interest due
but not collected on
investment, will be the
main components of this
item. As banks normally
debit the borrowers
account with the interest
due on the Balance Sheet
date, usually there may
not be any amount of
interest due on advances.
Only such interest as can
be realized in the ordinary
course should be shown
under this head. 28
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Page 29

III. Tax paid
in advance /
tax deducted
at source The amount of tax
deducted at source on
securities, advance tax
paid etc. to t he extent that
these items are not set off
against relative tax
provisions should be
shown against this item.
IV. Stationery
and Stamps Only exceptional items of
expenditure on stationery
like bulk purchase of
security paper, loose leaf
or other ledgers, etc.
which are shown as
quasi-asset to be written-
off over a period of time,
should be shown here.
The value should be on a
realistic basis and cost
escalation should not be
taken into account, as
these items are for
internal use.
V.Non-
banking
assets
acquired in
satisfaction
of claims Immovable properties /
tangible assets acquired
in satisfaction of claims
are to be shown under
this head.
VI. Others This will include items like
claims which have not
been met, for instance,
clearing items, debit items
representing addition to
assets or reduction in
liabilities, which have not
been adjusted for
technical reasons, want of
particulars, etc.,
advances given to staff by
a bank as an employer
and not as a banker, etc.
Items which are in the
nature of expenses,
which are pending 29
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Page 30

adjustments, should be
provided for and the
provision netted against
this item, so that only
realizable value is shown
under this head. Accrued
income other than interest
may also be included
here.
Conting
ent
Liabilitie
s 12 I. Claims
against the
bank not
acknowledge
d as debts
II. Liabilities
for partly
paid
investments Liabilities on partly paid
shares, debentures, etc.,
will be included in this
head.

III. Liabilities
on account of
outstanding
forward
exchange
contracts Outstanding forward
exchange contracts may
be included here

I V .
Guarantees
given on
behalf of
constituents
i) in India
ii)outside
India Guarantees given for
constituents in India and
outside India may be
shown separately.

V)
Acceptances,
endorsement
and other
obligations This item will include
letters of credit and bills
accepted by the bank on
behalf of customers. 30
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Page 31

VI. Other items
for which the
Bank is
contingently
liable Arrears of cumulative
dividends, bills
rediscounted under
under-writing contracts,
estimated amount of
contracts remaining to be
executed on Capital
Account and not provided
for, etc., are to be
included here.
Bills for
Collection B i l l s a n d o t h e r i t e m s i n
the course of collection
and not adjusted will be
shown against this item in
summary version only, a
separate schedule is
proposed.
Profit and Loss Account
Interest
earned 13 I. Interest /
discount on
advance / bills Includes interest and
discount on all types of
loans and advances, cash
credit, demand loans,
overdrafts, export loans,
term loans, domestic and
foreign bills purchased
and discounted (including
those rediscounted), over
interest and also interest
subsidy, if any, relating to
advances / bills
II. Income on
investments Includes all income
derived from the
investment portfolio by
way of interest and
dividend.
III. Interest on
balances with
the Reserve
Bank of India
and other inter-
bank funds Includes interest on
balances with Reserve
Ban and other banks, call
loans, money market
placements etc.
31
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Page 32

IV. Others I n c l u d e s a n y o t h e r
interest / discount income
not included in the above
heads.
Other
Income 14 I. Commission,
exchange and
brokerage Includes all remuneration
on services such as
commission on
collections, commission /
exchanges on
remittances and transfers,
commission on letters of
credit, letting out of
lockers and guarantees,
commission on
Government business,
commission on other
permitted agency
business including
consultancy and other
services, brokerage, etc.,
on securities. It does not
include foreign exchange
income.
II. Profit on sale
of investments ,
Less: Loss on
sale of
investments .
III. Profit on
revaluation of
investments .
Less: Loss on
revaluation of
investments.
IV. Profit on sale
of land,
buildings and
other assets.
Less: Loss on
sale of land,
buildings and
other assets.
Includes profit / loss on
sale of securities,
furniture, land and
buildings, motor vehicle,
gold, silver, etc. Only the
net position should be
shown. If the net position
is a loss, the amount
should be shown as a
deduction. The net profit /
loss on revaluation of
assets may also be
shown under this item.
32
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Page 33

V. Profit on
exchange
transactions.
Less: Loss on
exchange
transaction
VI.Incomeearned
by way of
dividends etc.
from
subsidiaries,
companies, joint
ventures abroad
/ in India. Includes profit / loss on
dealing in foreign
exchange, all income
earned by way of foreign
exchange, commission
and charges on foreign
exchange transactions
excluding interest which
will be shown under
interest. Only the net
position should be shown.
If the net position is a loss,
it is to be shown as a
deduction.
VII.
Miscellaneous
income. Includes recoveries from
constituents for godown
rents, income from bank’s
properties, security
charges, insurance etc.,
and any other
miscellaneous income. In
case, any item under this
head exceeds one
percentage of the total
income, particulars may be
given in the notes.
Interest
Expended 15 I. Interest on
deposits
Includes interest paid on
all types of deposits
including deposits from
banks and other
institutions.
II. Interest on
Reserve Bank
of India / inter-
bank
borrowings Includes discount / interest
on all borrowings and
refinance from the Reserve
Bank of India and other
banks.
III. Others Includes discount / interest
on all borrowings /
refinance from financial
institutions. All other
payments like interest on
participation certificates,
penal interest paid, etc.
may also be included here. 33
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Page 34

Operating
Expanses 16 I. Payments to
and provisions
for employees Includes staff salaries /
wages, allowances, bonus,
and other staff benefits,
like provident fund,
pension, gratuity, liveries
to staff, leave fare
concessions, staff welfare,
medical allowance to staff,
etc.
II. Rent, taxes
and lighting Includes rent paid by the
banks on buildings and
municipal and other taxes
paid (excluding income-tax
and interest tax) electricity
and other similar charges
and levies. House rent
allowance and other
similar payments to staff
should appear under the
head ‘Payments to and
Provisions for Employees’.
III. Printing and
Stationery Includes books and forms,
and stationery used by the
bank and other printing
charges, which are not
incurred by way of publicity
expenditure.
IV.
Advertisement
and Publicity Includes expenditure
incurred by the bank of
advertisement and
publicity purposes
including printing charges
of publicity matter.
V. Depreciation
on bank’s
property Includes depreciation on
bank’s own property, motor
cars and other vehicles,
furniture, electric fittings,
vaults, lifts, leasehold
properties, non-banking
assets, etc.
VI. Director’s
fees,
allowances and
expenses Includes sitting fees and all
other items of expenditure
incurred on behalf of the
directors. The daily 34
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Page 35

allowance, hotel charges,
conveyance charges, etc.
which though in the nature
of reimbursement of
expenses incurred, may be
included under this head.
Similar expenses of Local
Committee members may
also be included under this
head.
VII. Auditor’s
fees and
expenses
(including
branch
auditor’s fees
and expenses) Includes the fees paid to
the statutory auditors and
branch auditors for the
professional services
rendered and also all
expenses for performing
their duties, even though
they may be in the nature
of reimbursement of
expenses. If external
auditors have been
appointed by the banks
themselves for internal
inspections and audits and
other services, the
expenses incurred in that
context including fees may
not be included under this
head but should be shown
under ‘other expenditure’.
VIII. Law
charges All legal expenses and
reimbursement of
expenses incurred in
connection with legal
services are to be included
here.
IX. Postage,
telegraphs,
telephones, etc.Includes all postal charges
like stamps, telegrams,
telephones, teleprinter etc.

X Repairs and
maintenance Includes repairs to bank’s
property, their
maintenance charges, etc. 35
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Page 36

XI. Insurance I n c l u d e s i n s u r a n c e
charges on bank’s
property, insurance premia
paid to Deposit Insurance
and Credit Guarantee
Corporation, etc. to the
extent they are not
recovered from the
concerned parties.
XII. Other
expenditure








Provisions and
contingencies

All expenses other than
those not included in any
of the other heads, like,
licence fees, donations,
subscriptions to papers,
periodicals, entertainment
expenses, travel
expenses, etc., may be
included under this head.
In case, any particular item
under this head exceeds
one percentage of the total
income, the particulars
may be given in the notes.
Includes all provisions
made for bad and doubtful
debts, provisions for
taxation, provisions for
diminution in the value of
investments, transfers to
contingencies and other
similar items.

Disclosure of Accounting Policies

In order that the financial posit ion of banks represent a true
and fair view, the Reserve Bank of India has directed the banks to
disclose the accounting policies regarding the key areas of
operations along with the notes of account in their financial
statements for the accounting ye ar ending 31.3.1991 and onwards,
on a regular basis. The accounting policies disclosed may contain
the following aspects subject to m odification by individual banks:

1) General
T h e a c c o m p a n y i n g f i n a n c i a l statements have been prepared
on the historical cost and conform to the statutory provisions and
practices prevailing in the country. 36
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Page 37

2) Transactions involving Foreign Exchange
a) Monetary assets and liabilit ies have been translated at the
exchange rates, prevailing at the close of the year. Non-monetary
assets have been carried in the books at the historical cost.
b) Income and expenditure items in respect of Indian branches
have been translated at the exchange rates, ruling on the date of
the transaction and in respect of overseas branches at the
exchange rates prevailing at the close of the year.
c) Profit or losses on pending fo rward contracts have been
accounted for.

3) Investments
a) Investments in Governments and o t h e r a p p r o v e d s e c u r i t i e s i n
India are valued at the lower of cost or market value.
b) Investments in subsidiary co mpanies and associate companies
(i.e., companies in which the bank holds at least 25 percent of the
share capital) have been accounted fo r on the historical cost basis.
c) All other investments are valued at the lower of cost or market
value.

4) Advances
a) Provisions for doubtful ad vances have been made to the
satisfaction of the auditors:
i) In respect of identified advanc es, based on a perio dic review of
advances and after taking into a ccount the portion of advance
guaranteed by the Deposit Insu rance and Credit Guarantee
Corporation, the Export Credit and Guarantee Corporation and
similar statutory bodies;
ii) In respect of general advances, as a percentage of total
advances taking into account the guidelines issued by the
Government of India and the Reserve Bank of India.

b) Provisions in respect of doubtful advances have been deducted
from the advances to the extent n e c e s s a r y a n d t h e e x c e s s h a v e
been included under “Other Liabi lities and Provisions”.

c) Provisions have been made on a gross basis. Tax relief, which
will be available when the advance is written-off, will be accounted
for in the year of write-off.

5) Fixed Assets
a) Premises and other fixed assets have been accounted for at
their historical cost. Premis es which have been revalued are 37
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Page 38

accounted for the value dete rmined on the basis of such
revaluation made by the professi onal values; profit arising on
revaluation has been credit ed to Capital Reserve.

b) Depreciation has been prov ided for on the straight
line/diminishing balance method.

c) In respect of revalued assets, depreciation is provided for on the
revalued figures and an amount equal to the additional depreciation
consequent of revaluation is tr ansferred annually from the Capital
Reserve to the General Reserve / Profit and Loss Account.

6) Staff Benefits
P r o v i s i o n s f o r g r a t u i t y / p e n s ion benefits to staff have been
made on an accrual / casual basis. S e p a r a t e f u n d s f o r g r a t u i t y /
pension have been created.

7) Net Profit

a) The net profit discl osed in the Profit and Loss Account is after:

i) provisions for taxes on income, in accordance with the statutory
requirements.
ii) provisions for doubtful advances.
iii) adjustments to the va lue of “current investments” in Government
and other approved securities in Indi a, valued at lower of cost or
market value.
iv) transfers to contingency funds.
v) other usual or necessary provisions.

b) Contingency funds have been g r o u p e d i n t h e B a l a n c e S h e e t
under the head “Other Liab ilities and Provisions”.

the year) 1.6. SOME IMPORTANT TRANSACTIONS

1.6.1 Rebate on Bills Discounted :
R e b a t e o n B i l l s D i s c o u n t e d i s t h e D i s c o u n t i n c o m e
not earned by the bank of discounting off t he Bill of the Bill as
it gets mature after the closing date of its accounting year.

Journal entries :
i) On discounting of Bill
B i l l s D i s c o u n t e d a n d p u r c h a s e d A / c Dr (with its full value)
T o C u s t o m e r ’ s A c c o u n t ( w i t h t h e p r o c e e d s v a l u e )
T o D i s c o u n t A / c ( w i t h t h e a m ount of Discount earned during
38
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To Rebate on Bills Discounted (w ith the amount of unearned
Discount)

‘Rebate on Bills Discounted’ appears on Liabilities side of
Balance sheet under – “other liabilit ies and provisions” (schedule-5)
as it is the income received in advance.

ii) At the beginning of Accounting year entry will be Rebate on
Bills Discounted A/c Dr.

To Discount A/c (with t he amount of unearned Discount)

Illustration 1:

On 1st J a n u a r y 2 0 0 8 A j m e r B a n k L t d . D i s c o u n t e d a b i l l o f R s . 3 ,
00,000 @ 10 percent p.a. The Bills falls due on 31st May 2008 and
bank closes its account on 31st March every year. Pass necessary
journal entry.

Journal Entry
Solution:

1 Jan, 08 Bills discounted and purchased A/c Dr
To Customers’ A/c
To Discount A/c
To Rebate on bills discounted
(Being the bills discounted) 3,00,000
2,87,500
7,500
5,000
1 April, 08 Rebate on bills discounted A/c Dr.
To Discount A/c
(Being in next accounting year Rebate
on bills discounted transferred to
discount A/c) 5,000
5,000

Note : Discount for 3 months = 3,00,000 10 37,500100 12×× =
R e b a t e o n b i l l s f o r 2 m o n t h s = 3 , 0 0 , 0 0 0 10 25, 000100 12×× =

Illustration 2:
Following are the details o f b i l l s d i s c o u n t e d b y U C O B a n k L t d .
During the year ended 31/3/08

Date of Bill
2009 Amount
(Rs). Term
(Months) Rate of
Discount
p.a. (%) Discount
(Rs.)
Jan 15
March 5
Feb. 6 1,00,000
1,50,000
80,0004
3
512
15
184,000
5,625
6,000
Total 3,30,000 15,625 39
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Calculate Rebate on bills discounted and show the necessary
Journal entry.

Date of
Bill 2009 Date of
maturity No. of days
outstanding
after 31/3/2008 Amount
(Rs.) Discount
(%) Total amount
of discount
(Rs.) Portion of
Discount o/s
after
31/3/2008
(Rs.)
Jan 15
March 05
Feb 06 May 18
June 08
July 09 (30 + 18) 48
(30+31+8) 69
(30+31+30+9)
100 1,00,000
1,50,000
80,000
12
15
18 12,000
22,500
14,400 1,578.08
4,253.42
3,945.21
Total 9,776.71

Journal Entry:

Bills discounted and purchased A/c Dr. 3, 30,000
T o C u s t o m e r A / c ( 3 , 30,000 – 5,848.29-9776.71)
T o D i s c o u n t A / c ( 1 5 6 2 5 - 9 7 7 6 . 7 1 ) 5 8 4 8 . 2 9
T o R e b a t e o n b i l l s d i s c o u n t e d 9 7 7 6 . 7 1

1.6.2 Acceptance Endorsement and other obligations
T h e B a n k a c c e p t s o r e n c l o s e s a bill on behalf
of its customers who has raised loan or made purchases on
credit basis and a customer deposit equal amount of security into
the bank. On maturity bank pays amount to the party on behalf
of its customer and at the same time claims same a m o u n t f r o m
its customer. It is shown under the heading ‘contingent Liabilities’
(Schedule -12)

1.6.3 Bills for collection
M a n y b a n k c u s t o m e r s u s u a l l y handover bills receivables to
the bank for the purpose of its collection on ma turity when the
bills get mature, bank credit the amount to the respective
client’s account. The ‘Bills for collection’ is shown at the foot of the
Balance sheet.

1.6.4 Provisions and contingencies
T h e r e i s n o s e p a r a t e s c h e d u l e g i v e n b y t h e
Banking Regulation Act,1949 regarding prov isions and
contingencies but it is shown in the profit and loss
account under the heading ‘Provisions and contingencies’. It
includes provisions for bad and doubtful debts, Provision for
income t a x p r o v i s i o n s f o r R e b a t e o n bills discounted and
such other r e q u i r e d p r o v i s i o n s a n d contingencies. It is
included in sc hedule – 5 ‘other liabilities and provisions’ with
sub-he ading – IV – others”.





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PROBLEMS

Illustration 1

A Smruti Bank Ltd. Provides y ou the following balances as on 31st
March 2009.

Particulars Amount (Rs.)
Share capital (Issued and subscribed)
Current account
Money at call and short notices
Rebate on bills discounted
Commission exchange and brokerage
Interest on loans
Interest on fixed deposit
Commission Received
Salaries and allowances
Reserve for building
Unclaimed discount
Unexpired discount
Investment of cost: Central and State
Government
- Securities
- Debentures
- Bullion
Reserve fund
Fixed deposit
Directors fees and allowances
Rent and taxes paid
Postage and telegram
Rent received
Interest on balances with RBI
Profit on sale of Investment
Loans, advances, overdraft and cash credit
Bills payable
Borrowings from banks in India
Branch adjustment
Furniture and fixtures
Non banking assets acquired
Interest accrued on investment
Dividend fluctuation fund 39,000
8,58,000
9,885
22,500
27,000
77,700
82,500
2,400
31,500
39,000
936
1,950


3,90,000
15,600
93,600
62,400
1,56,000
3,600
16,200
6,000
9,000
60,825

3,90,000
78,000
9,750
2,25,966
1,23,900
2,730
10,140
23,400 1.7 SOLVED 41
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Profit and loss A/c (Credit balance)
Locker rent
Transfer fees
Interest on saving bank deposits
Interest on cash credit
Premises at cost
Additions to premises
Advance payment of tax
Silver bullion
Saving Bank deposit
Cash balances with RBI
Cash balances with other banks
Depreciation Fund on premises 7,800
3,000
1,500
20,400
66,900
3,90,000
78,000
4,290
7,800
2,34,000
1,32,600
46,800
3,12,000


Other Information:

1) There was a claim of rupees 7,800 against bank but not
acknowledge as debt.
2) Bank transfer reserve for building to depreciation fund of
premises
3) Directors decided to declare 10 percent dividend
4) Provide rupees 1, 05,000 for income tax and rupees 15,000
for doubtful debts.
5) Transfer 20 percent of profit t o s t a t u t o r y r e s e r v e . P r e p a r e
final accounts of the bank.

Solution:

Smruti Bank Ltd.
Balance Sheet as on 31st March 2009

S c h e d u l e
No. As on 31st M a r c h
2009

39,000
1,01,625
12,48,000
9,750
5,58,036

19,56,411 Capital and Liabilities
Capital
Reserves and surplus
Deposits
Borrowings
Other Liabilities and provisions

Total

1
2
3
4
5


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1,32,600

56,685
4,99,200
4,25,100
5,91,900
2,50,926

19,56,411 Assets
Cash and balances with
Reserve Bank of India
Balances with banks and
money at call and short notice
Investments
Advances
Fixed Assets
Other Assets
Total
Contingent liabilities
Bills for collection 6

7
8
9
10
11


12
7,800

Profit and Loss account for the year ended 31st March 2009

S c h e d u l e
No. As on 31st M a r c h
2009

2,49,225
42,900

2,92,125

1,02,900
57,300
1,20,000
2,80,200

11,925
7,800
19,725

2,385

3,900

13,440 I. Income
Interest earned
Other income

Total
II. Expenditure
Interest expended
Operating expenses
Provisions and contingencies
Total
III. Profit / Loss
Net profit / Loss (-) for the year
Profit / Loss (-) brought forward
Total
IV. Appropriations
Transfer to statutory reserves
Transfer to other reserves
Transfer to Government /
proposed dividend
Balance carried over to
Balance sheet
Total
13
14



15
16
19,725

Schedule 1 – Capital

A s o n 3 1st March 2009
Authorized Capital 39,000
Issued and subscribed 39,000
Total 39,000

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Schedule 2 - Reserves and surplus

A s o n 3 1st March 2009
62,400
2,385I. Statutory Reserves
Opening Balance
Additions during the year
II. Revenue and other
Reserves
Dividend fluctuation fund
III. Balance in profit and loss
Account

64,785


23,400
13,440
Total (I + II + III)
1,01,625

Schedule 3 – Deposits

A s o n 3 1st March 2009
A. I. Demand Deposits : From banks
II. Saving Bank Deposits
III. Term D eposits : Fixed Deposits 8,58,000
2,34,000
1,56,000
Tota l (I + II + III) 12,48,000
B. I. Deposits of branches in India
II. Deposits of branches outside India 12,48,000
--
Total 12,48,000

Schedule 4 – Borrowings

A s o n 3 1st March 2009
I. Borrowings in India: other banks 9,750
Total 9,750

Schedule 5–other liabilities and provision

A s o n 3 1st March 2009
I. Bills payable
II. Others : Rebate for bills discount
Provision fo r tax and doubtful debts
Unclaimed Discount
Unexpired Discount
Depreciation fund on premises
Proposed dividend 78,000
2,250
1,20,000
936
1,950
3,51,000
3,900
Total (I + II) 5,58,036

Note : Depreciation fund on premises = 3,12,000 + 39,000
= 3, 51,000


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Schedule 6 – Cash and Balances with RBI

A s o n 3 1st March 2009
I. Balances with RBI 1,32,600
Total 1,32,600

Schedule 7 – Balances with Ban ks and money at calls & short
notice

A s o n 3 1st March 2009
I. Balances with other banks in India
II. Money at call & short notice 46,800
9,885
Total (I + II) 56,685

Schedule 8 – Investments

A s o n 3 1st March 2009
I. Investment in Gove rnment securities
Debentures
Bullion 3,90,000
15,600
93,600
Total 4,99,200

Schedule 9 – Advances

A s o n 3 1st March 2009
I. Bills purchased and discounted
II. Cash credits, overdrafts and loans
repayable on demand 35,100
3,90,000
Total 4,25,100

Schedule 10 – Fixed Assets

A s o n 3 1st March 2009
I. Premises
Opening Balance
Additions during the year
II. Other Fixed Assets 3,90,000
78,000
4,68,000
1,23,900
Total (I + II) 5,91,900

Schedule 11 – Other Assets

A s o n 3 1st March 2009
I. Inter office adjustments
II. Interest accrued on investment
III. Advance payment of tax
IV. Non banking Assets acquired in
satisfaction of claims
V. Other : Silver bullion 2,25,966
10,140
4,290
2,730

7,800
Total 2,50,926 45
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Schedule 12 – Contingent Liabilities

A s o n 3 1st March 2009
I. Claims against the bank not
acknowledged as debt 7,800
Total 7,800

Schedule 13 – Interest earned

A s o n 3 1st March 2009
I. Interest / discount on Advances / bills:
Interest on loans
Interest on cash credits
II. Interest on balances with Reserve
Bank of India and other inter-bank
funds
III. Others: Discount on bills discounted
7,77,000
66,900
60,825


43,800
Total 2,49,225

Schedule 14- Other income

A s o n 3 1st March 2009
I. Commission exchange and brokerage
II. Profit on sale of investment
III. Miscellaneous income: Rent Received
Locker rent
Transfer fees
Commission received 27,000
28,500
9,000
3,000
1,500
2,400
Total 42,900

Schedule 15 – Interest expanded

A s o n 3 1st March 2009
I. Interest on Fixed deposits
II. Interest on saving bank deposit 82,500
20,400
Total 1,.02,900

Schedule 16 – Operating Expenses

A s o n 3 1st March 2009
I. Rent and Taxes paid
II. Directors fees, allowances and
expenses
III. Postage and telegram
IV. Other expenditure 16,200
3,600

6,000
31,500
Total 57,300
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Illustration 2:

On 31st March 2010 the following trial balance was extracted from
Amin Bank Ltd. You are required to prepare profit and loss account
for the year ended 31st March 2010 and also the balance sheet as
on that date.

Debit Balances Amount
(Rs.)
Insurance charges on bank property
Depreciation on banks property
Fees paid to statutory auditor
Staff salaries and medical allowances
Rent on building and municipal taxes
Interest due but not collected on investment
Land and building at cost
Other fixed Assets
Loss on sale of other fixed Assets
Repairs and maintenance
Legal charges
Tax deducted at source
Cash in hand
Balances with RBI: Current A/c
Other Accounts
Printing and stationary
Printing charges of publicity matters
Stationary and stamp
Term loans
Licence fee
Directors sitting fees
Other expenditure
Balance with other bank: In current A/c
In other deposit A/c
Money call and short notices with bank
Cash credit and overdraft
Investment:
Government treasury bills
Other approved securities
Joint ventures
Debentures and bonds of companies
Non banking Assets acquired in satisfaction of claims
Interest on RBI borrowings
Bills purchased and discounted
Interest paid on deposit: From banks
Other institution
Inter-office adjustment (net) 2,899
3,523
21,944
1,45,366
9,035
33,280
4,693
24,570
2,795
1,508
221
93,873
27,482
9,75,026
12,805
2,418
520
1,846
9,11,599
12,155
4,524
9,295
7,139
3,560
325
12,96,984

12,78,576
4,91,452
16,380
19,721
6,500
5,785
2,84,089
59,280
2,37,159
16,562

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Credit Balances Amount
(Rs.)
Issued, subscribed and paid up share capital:
3250 shares of Rs. 10 each
Interest on debentures and bonds
Rebate on bills discounted
Depreciation on building to date
Statutory Reserve
Revenue Reserves
Depreciation on other fixed assets to date
Demand deposits : From banks
From others
Saving bank deposits
Term deposits
Commission on remittances and transfer
Letting out lockers
Interest on balances with RBI and other
Inter-bank funds
Income earned by way of di vidend from joint venture
Interest on advances, cash credit and overdraft
Interest accrued
Profit on sale of investment
Bills payable
Borrowings from RBI
Profit and loss account 32,500

1,86,706
42,939
1,417
97,591
71,500
12,610
13,39,050
10,9,540
15,41,865
19,04,760
53,582
5,920
44,811

2,274
4,04,859
16,328
2,275
71,162
37,700
45,500

Adjustments:

1. The authorized capital of bank i s r u p e e s 6 5 , 0 0 0 d i v i d e d i n t o
6,500 shares of Rupees10 each, 50 percent of it is issued and
subscribed.
2. The provision for income tax to be made @ 45 percent
3. All advances are in I n d i a a n d t h e y a r e classified as follows:
priority sectors 12, 46,336; public sector 4, 98,534; banks 3,
94,198; others 3, 53,604. Advances secured by tangible assets
Rs. 11, 21,702; covered by bank/ Government guarantees Rs.
8, 72,435 and remaining ar e unsecured 4, 98,535.
4. Bank Transfer 20 percent of pr ofit to statutory reserve and 15
percent to revenue reserves.
5. contingent liabilities:
i) Claim against the bank not a c k n o w l e d g e d a s d e b t R s .
2,150.
ii) Liability on account of outstanding forward exchange
contracts Rs. 640.
iii) Acceptance, endorsement and other obligations 4542. 48
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Solution 2:
Amin Bank Ltd.
Balance Sheet as on 31st March 2010

S c h e d u l e
No. As on 31st March
2010
Capital & Liabilities
Capital
Reserves & Surplus
Deposits
Borrowings
Other Liabilities and provisions
32,500
3,14,691
48,95,215
37,700
2,12,329
Total 54,92,435
Assets
Cash and balances with Reserve
Bank of India
Balances with banks and money at
call and short notice
Investments
Advances
Fixed Assets
Other assets
10,15,313

11,024

18,06,129
24,92,672
15,236
1,52,061
Total 54,92,435
Contingent Liabilities
1
2
3
4
5


6

7

8
9
10
11
7,332

PROFIT & LOSS A/C FOR THE YEAR ENDED ON
31ST MARCH, 2010

S c h e d u l e
No. As on 31-3-
10
I. Income: Interest earned
Other Income 6,36,376
61,256
Total 6,97,632
II. Expenditure: Interest expended
Operating expenses
Provisions and contingencies 3,02,224
2,13,408
81,900
Total 5,97,532
III. Profit / Loss:
Net Profit / Loss (-) for the year
Profit / Loss (-) brought forward
1,00,100
45,500
Total 1,45,600
IV. appropriations:
Transfer to statutory reserves
Transfer to other reserves
Transfer to Government/proposed
dividend
Balance carried over to Balance Sheet
29,120
21,840


94,640
Total13
14

15
16
1,45,600 49
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Schedule 1 – Capital

A s o n 3 1st March 2010


65,000

32,500

32,500

32,500 For other banks
Authorized capital
6500 shares of Rs. 10 each
Issue capital
3250 shares of Rs. 10 each
Subscribed capital:
3250 shares of Rs. 10 each
Called-up capital:
3250 shares of Rs. 10 each
32,500

Schedule 2 – Reserves and surplus

As on 31st March 2010

97,591
29,120
1,26,711

71,500
21,840
93,340 I. Statutory reserves:
Opening balance
Additions during the year

II. Revenue and other reserves
Opening balance
Additions during the year

III. Balance in profit and loss A/c 94,640
Total (I + II + III) 3,14,691

Schedule 3 – Deposits

A s o n 3 1st March, 2010
I. Demand deposits: From banks
From others
II. Savings bank deposits
III. Term deposits 13,39,050
1,09,540
15,41,865
19,04,760
Total ( I + II + III) 48,95,215

Schedule 4 – Borrowings

A s o n 3 1st March, 2010
I. Borrowings in India : Reserve bank
of India 37,700
Total 37,700


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Schedule 5– Other Liabilities and provisions

A s o n 3 1st March, 2010
Bills payable
Interest accrued
Others: Rebate on bills discounted
Provision for income tax 71,162
16,328
42,939
81,900
Total 2,12,329

Schedule 6 – Cash and balances with RBI

A s o n 3 1st March, 2010
I. Cash in hand
II. Balances with RBI:
In current A/c
In other A/c 27,482

9,75,026
12,805
Total 10,15,313

Schedule 7 – Balances with banks & money at call
& short notice

A s o n 3 1st March, 2010
I. Balances with banks:
In current A/c
In other deposit A/c
II. Money at call & short notice
7,139
3,560
325
Total ( I + II) 11,024

Schedule 8 – Investment

A s o n 3 1st March, 2010
Investments in:
Government treasury bills
Other approved securities
Debentures and bonds of companies
Subsidiaries and joint venture
12,78,576
4,91,452
19,721
16,380
Total 18,06,129

Schedule 9 – Advances

A s o n 3 1st March, 2010
A)
i) Bills purchased and discounted
ii) Cash credit, overdraft and loans
repayable on demand
iii) Terms loans
2,84,089
12,96,984

9,11,599
Total 24,92,672 51
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B)
i) Secured by tangible assets
ii) Covered by bank / Government
guarantees
iii) Unsecured
11,21,702
8,72,435

4,98,535
Total 24,92,672
C)
I) Advances in India :
i) Priority sectors
ii) Public sector
iii) Banks
iv) Others

12,46,336
4,98,534
3,94,198
3,53,604
Total 24,92,672
II) Advances outside India --

Schedule 10 – Fixed Assets

A s o n 3 1st March, 2010
4,693
(1,417)
3,276


24,570
(12,610) I) Premises: At cost
Depreciation to date

II) Other fixed assets (including
Furniture and fixtures):
At cost
Depreciation to date
11,960
Total (I + II) 15,236

Schedule 11 – Other Assets

A s o n 3 1st March, 2010
Inter office adjustments
Interest due on investment but not
collected
Tax deducted at source
Stationary and stamps
Non banking assets acquired in
satisfaction of claims 16,562
33,280

93,873
1,846
6,500
Total 1,52,061








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Schedule 12 – Contingent Liabilities

A s o n 3 1st March, 2010
Claim against the bank not
acknowledge as debts
Liability on account of outstanding
forward exchange contracts
Acceptance, endorsement and other
obligations 2,150

640

4,542
Total 7,332

Schedule 13 – Interest earned

A s o n 3 1st March, 2010
Interest on advances, cash credit and
overdraft
Interest on debentures and bonds
Interest on balances with RBI and
other inter bank funds 4,04,859

1,86,706
44,811
Total 6,36,376

Schedule 14 – Other income

A s o n 3 1st March, 2010
Commission on remittances and
transfer
Profit on sale of investment
Loss on sale of other fixed assets
Income earned by way of dividend, etc
Form subsidiaries / companies
Miscellaneous income:
Letting out lockers 53,582

2,275
(2,795)
2,274


5,920
Total 61,256

Schedule 15 – Interest expanded

A s o n 3 1st March, 2010
Interest on deposits:
From banks
From other Institution
Interest on RBI / inter bank borrowings
59,280
2,37,159
5,785
Total 3,02,224




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Schedule 16 – Operating Expenses

A s o n 3 1st March, 2010
Staff salaries and medical allowances
Rent on building and municipal taxes
Printing and stationery
Printing charges of publicity matters
Depreciation on banks property
Directors fees, allowances and
expenses
Fees paid to statutory auditor
Law charges
Repairs and maintenance
Insurance charges on bank property
Other expenditure: license fee
Other expenses 1,45,366
9,035
2,418
520
3,523
4,524

21,944
221
1,508
2,899
12,155
9,295
Total 2,13,408

Illustration 3

From the following info rmation, prepare final accounts of Jetty Bank
Ltd. as on 31st March, 2010

Debit Balances Amount
(Rs.)
Inter-office Adjustments (Net)
Interest on investment not collected but accrued
Stationery and stamp
Interest on deposits
Interest on RBI and Inter-Bank borrowings
Investment: In India
Government securities
Other approved securities
Subsidiaries and Joint Ventures
Mutual fund
Commercial paper
Unit Trust of India
Outside India
Foreign Government securities (Issued by local
authorities)
Subsidiaries and Joint Ventures
Rent, Taxes, lighting
Printing and stationery
Depreciation on land and Building 135
365
410
2,100
820

2,215
1,600
310
225
60
365

665

234
500
775
400 54
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Page 55

663
220
900
516
1,295
615
785
1,315
771
1,710
644
224 Directors Fees, allowances and expenses
Law charges
Non-banking assets acquired in satisfaction of claims
Tax paid in advance
Land and Building at cost
Other fixed assets
Bills purchased and discounted
Cash credit, overdrafts and loans
Terms loans
Balance with RBI
Balance with other Banks
Money at call and short notices
20,837

Credit Balances Amount
(Rs.)
2,000
225
311
1,775
1,100
1,322
775
1,120
1,335
330
1,000
925
885
700
435
1,100
375
446
1,135
531
411
225
800
665
911 Authorised, issued and subscribed capital
Deposits Repayable on demand
Certificates of deposits from non-bank sectors
Saving Bank deposits
Term Deposits: From Banks
Cumulative and Recurring deposits
Interest on Balances with other banks
Interest / discount on advances / bills
Income on investment
Commission, exchange and brokerage
Profit on sale of land and building
Income earned by way of dividend from subsidiaries
Statutory Reserves
Capital Reserves
Revenue and other Reserves
Borrowings in India : RBI
Other banks
Borrowings outside India
Profit on sale of investment (Net)
Profit on exchange transactions (Net)
Bills Payable
Inter-office Adjustment (Net)
Interest accrued
Other provisions
Interest on call loans
20,837 55
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Adjustments:

1. Advances amounting Rs. 1,439 ar e secured by tangible assets;
Rs. 1,210 covered by guarantees of Indian and foreign
governments and banks; and remaining are unsecured.
2. Advances are made both in India and outside India:
A d v a n c e s i n I n d i a o n s e c t o r a l basis – priority sector Rs. 860;
public sector Rs. 574; Banks Rs. 287 and other Rs. 193
A d v a n c e s o u t s i d e I n d i a – D u e f r o m B a n k s R s . 6 2 3 a n d d u e
from others Rs. 334
3. Provision is to be made for income tax at the rate of 30%.
4. Dividend is proposed at the rate of 15 percent.
5. The contingent liabilities appears as on 31st M a r c h 2 0 1 0 a s
follows.
i) Acceptance, endorsement and other obligations Rs. 310.
i i ) C l a i m s a g a i n s t b a n k n o t a cknowledged as debt Rs. 620.
6. Out of total deposits, Rs. 1, 317 are deposits of branches outside
India.

Solution:

Balance Sheet of Jetty Bank Ltd. as on 31-03-10

S c h e d u l e
No. As on 31st March
2010
Capital & Liabilities
Capital
Reserves & Surplus
Deposits
Borrowings
Other Liabilities and provisions
2,000
3,528.8
4,733
1,921
3,176.2
Total 15,359
Assets
Cash and balances with RBI
Balances with banks and money at
call and short notice
Investments
Advances
Fixed Assets
Other assets
1,710
868

5,674
2,871
1,910
2,326
Total 15,359
Contingent Liabilities
Bills for collection
1
2
3
4
5


6
7

8
9
10
11

12
-- 930
-- 56
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PROFIT & LOSS A/C FOR THE YEAR ENDED ON
31ST MARCH, 2010

S c h e d u l e
No. As on 31-3-
10
I. Income:
Interest earned
Other Income
4,141
3,921
Total 8,062
II. Expenditure:
Interest expended
Operating expenses
Provisions and contingencies
2,920
2,558
775.2
Total 6253.2
III. Profit / Loss:
Net Profit for the year
1808.8
IV. Appropriations:
Transfer to statutory reserves
Transfer to other reserves
Transfer to proposed dividend
Balance carried over to Balance Sheet
361.76
--
300
1147.04
Total
13
14


15
16
1,808.8

Schedule 1 – Capital

A s o n 3 1st March 2010
2,000 Authorized, Issue, Subscribed capital:
2,000

Schedule 2 – Reserves and surplus

As on 31st March 2010

885
361.76
1246.76 I. Statutory reserves:
Opening balance
Additions during the year

II. Capital reserve
III. Revenue and other reserves
IV. Balance in profit and loss A/c 700
435
1147.04
Total 3,528.8






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Schedule 3 – Deposits

A s o n 3 1st March, 2010
A) I. Demand deposits:
Bank deposits repayable on demand
Certificate of deposits from non bank
II. Savings bank deposits
III. Term deposits
Cumulative and recurring deposits
225
311
1,775
1,100
1,322
Total ( I + II + III) 4,733
B)
I) Deposits of branches in India
II) Deposits of branches outside India
3,416
1,317
Total (I +II) 4,733

Schedule 4 – Borrowings

A s o n 3 1st March, 2010
I. Borrowings in India : RBI
Other Banks
II. Borrowings outside India 1,100
375
446
Total (I + II) 1,921

Schedule 5 – Other Liab ilities and provisions

A s o n 3 1st March, 2010
I) Bills payable
II) Inter office adjustment
III) Interest accrued
IV) Others: Provision for tax
Dividend 411
225
800
775.2
300
Total (I + II + III + IV) 3176.2

Schedule 6 – Cash and balances with RBI

A s o n 3 1st March, 2010
I. Cash in hand
II. Balances with RBI: --
1,710
Total 1,710




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Schedule 7 – Balances with banks & money at call
& short notice

A s o n 3 1st March, 2010
I. In India: Balances with banks:
Money at call & short notice 644
224
Total 868
II. Outside India --
Total (I + II) 868

Schedule 8 – Investment

A s o n 3 1st March, 2010
I. Investments in India in:
Government securities
Other approved securities
Subsidiaries and joint ventures
Others: mutual fund 225
Comme rcial papers 60
UTI 365
2,215
1,600
310


650
Total 4,775
II. Investment outside India in:
Government se curities (including
local authorities)
Subsidiaries and joint ventures
abroad
Total
665

234

899
Grand Total (I + II) 5,674

Schedule 9 – Advances

A s o n 3 1st March, 2010
A)
i) Bills purchased and discounted
ii) Cash credit, overdraft and loans
repayable on demand
iii) Terms loans
785
1,315

771
Total 2,871
B)
i) Secured by tangible assets
ii) Covered by bank / Government
guarantees
iii) Unsecured
1,439
1,210

222
Total 2,871


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C)
I) Advances in India :
i) Priority sectors
ii) Public sector
iii) Banks
iv) Others

860
574
287
193
Total 1,914
II) Advances outside India
i) Due from banks
ii) Due from others
623
334
Total 957
Grand Total (C. I + C. II) 2,871

Schedule 10 – Fixed Assets

A s o n 3 1st March, 2010
I) Premises: At cost
II) Other fixed assets (including
Furniture and fixtures) 1,295
615
Total (I + II) 1,910

Schedule 11 – Other Assets

A s o n 3 1st March, 2010
i) Inter office adjustments
ii) Interest accrued
iii) Tax paid in advance
iv) Stationary and stamps
v) Non banking assets acquired in
satisfaction of claims 135
365
516
410
900
Total 2,326

Schedule 12 – Contingent Liabilities

A s o n 3 1st March, 2010
i) Claim against the bank not
acknowledge as debts
ii) Acceptance, endorsement and
other obligations 620

310
Total 930






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Schedule 13 – Interest earned

A s o n 3 1st March, 2010
I) Interest / discount on advances /
bills (911 + 1120)
II) Income on investment
III) Interest on balances with other
bank 2,031

1,335
775
Total 4,141

Schedule 14 – Other income

A s o n 3 1st March, 2010
I) Commission, exchange and
brokerage
II) Profit on sale of investments
III) Profit on sale of land, buildings and
other assets
IV) Profit on exchange transactions
V) Income earned by way of dividend
etc, from subsidiaries / companies 330

1,135
1,000

531
925
Total 3,921

Schedule 15 – Interest expanded

A s o n 3 1st March, 2010
I) Interest on deposits:
II) Interest on RBI / inter bank
borrowings 2,100
820
Total 2,920

Schedule 16 – Operating Expenses

A s o n 3 1st March, 2010
I) Rent, taxes and lighting
II) Printing and stationery
III) Depreciation on banks property
IV) Directors fees, allowances and
expenses
V) Law charges 500
775
400
663

220
Total 2,558

Illustration 4
The following are the balances of merchant Bank Ltd. for the year
ended 31st M a r c h , 2 0 0 8 . P r e p a r e p r o f i t a n d l o s s a c c o u n t f o r t h e
year ended 31st M a r c h , 2 0 0 8 a n d a l s o b a l a n c e s h e e t a s o n t h a t
date. 61
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Page 62

Debit Balances Amount
(Rs.)
Balance with RBI
Premises at cost
Additions during the year
Other fixed assets
Balances with other banks in current account
Balances with banks in other deposit A/c
Money at call and short notices
Inter-office adjustment
Interest accrued
Stationary and stamps
Tax paid in advance
Non banking assets acquired in satisfaction of
claims
Medical allowances
Allowances to employees
Staff provident fund
Other provisions for employees
Expenses on books and forms
Insurance charges
Telephone and stamp
Subscription to periodicals
Rent and taxes
Audit fees and expenses
Interest on deposits
Interest on inter bank borrowings
Bills purchased and discounted
Cash credit, overdraft and loans
Term loans
Investment: In Government securities
Shares
Debentures and bonds
Subsidiaries 1,500
860
900
1,300
3,300
1,000
3,000
800
800
1,750
380
240

410
525
230
333
125
400
360
250
155
600
930
630
1,830
2,070
1,330
3,450
3,000
782
2,200
Total 32,470 62
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Credit Balances (Rs. In‘ 000)
Amount
(Rs.)
Issued, subscribed an d called up capital:
30,000 shares of Rs. 100 each
Rent received
Miscellaneous income
Income earned from subsidiaries
Commission on remittances and transfer
Interest on balance with RBI
Dividend on shares
Profit on sale of investment
Depreciation to date (Premises)
Depreciation to dat e (other assets)
Revenue reserves
Profit on sale of other assets
Borrowings: From NABARD
From RBI
From Co-operative Banks
Capital reserves
Statutory reserves
Share premium
Bills payable
Inter office adjustment
Interest on loans and advances
Discount on bills purchased
Balances in profit and loss A/c
Interest accrued
Interest on debentures and bonds
Demand deposits: From banks
From others
Fixed deposit
Saving bank deposit
3,000
310
400
830
730
840
350
650
350
210
910
1,100
1,200
1,100
980
1,400
1,000
590
2,000
900
1,940
960
2,220
1,500
500
2,790
1,210
1,050
1,450
Total 32,470






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Other Information:

1) On 31st March, 2008 advances appears as follows:
(Rs. In ‘000)
B i l l s p u r c h a s e d
and discounted Cash credit,
overdraft, loans Term loan
Standard assets
Sub-standard assets
Doubtful assets:
- upto 1 year
- 1 year to 3 year
- more than 3 years
Loss assets 1,030
800
--
--
--
--985
300
100
360
255
70475
200

360
140
110
45
Total 1,830 2,070 1,330

The provision is yet to be made on above advances.
2) Depreciation to be charged on premises Rs. 1, 53,000 and
other assets Rs. 1, 10,000.
3) Directors declare interim dividend @ 10 Percent
4) Claims against the bank not acknowledged as debt Rs. 7,
80,000. Liability for partly pai d investment Rs. 5, 95,000.

Solution:
MERCHANT BANK LTD.
Balance Sheet as on 31-3-2008

S c h e d u l e
No. As on 31st March
2010
(Rs. In ‘000)
Capital & Liabilities
Capital
Reserves & Surplus
Deposits
Borrowings
Other Liabilities and provisions
3,000
8,299.5
6,500
3,280
4,950
Total 26029.5
Assets
Cash and balances with RBI
Balances with banks and money at
call and short notice
Investments
Advances
Fixed Assets
Other assets
1,500
4,330

9,432
4560.5
2,237
3,970
Total 26,029.5
Contingent Liabilities
Bills for collection
1
2
3
4
5


6
7

8
9
10
11

12
-- 1,695
-- 64
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PROFIT & LOSS A/C FOR THE YEAR ENDED ON
31ST MARCH, 2008

S c h e d u l e
No. As on 31-3-10
(Rs. In ‘000)
I. Income: Interest earned
Other Income 4,590
4,020
Total 8,610
II. Expenditure: Interest expended
Operating expenses
Provisions and contingencies 1,560
3,651
919.5
Total 6,130.5
III. Profit / Loss:
Net Profit / Loss (-) for the year
Profit / Loss (-) brought forward
2,479.5
2,220
Total 4,699.5
IV. Appropriations:
Transfer to statutory reserves
Transfer to other reserves
Transfer to Government / proposed
dividend
Balance carried over to Balance Sheet
495.9

300

3,903.6
Total13
14


15
16
4,699.5

Schedule 1 – Capital

A s o n 3 1st March 2008

3,000

3,000

3,000 Authorized capital
30,000 shares of Rs. 100 each
Issue capital
30,000 shares of Rs. 100 each
Subscribed capital:
30,000 shares of Rs. 100 each
Called-up capital:
30,000 shares of Rs. 100 each
3,000





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Schedule 2 – Reserves and surplus

As on 31st March 2008
1,000
495.9
1,495.9 I. Statutory reserves:
Additions during the year

II. Capital reserve
III. Shares Premium
IV. Revenue and other Reserves
V. Balance in profit and loss account 1,400
590
910
3,903.6
Total (I + II +I II +IV + V) 8,299.5

Schedule 3 – Deposits

A s o n 3 1st March, 2008
I. Demand deposits:
i) From banks
ii) From others
II. Savings bank deposits
III. Term deposits
2,790
1,210
1,450
1,050
Total ( I + II + III) 6,500

Schedule 4 – Borrowings

A s o n 3 1st March, 2008
I. Borrowings in India :
Reserve Bank of India
Other Banks: From NABA RD
From Co -operative banks
1,100
1,200
980
Total 3,280

Schedule 5 – Other Liab ilities and provisions

A s o n 3 1st March, 2008
I) Bills payable
II) Inter office adjustment (Net)
III) Interest accrued
IV) Others: Interim Dividend
Provision on tax 2,000
900
1,500
300
250
Total 4,950

Schedule 6 – Cash and balances with RBI

A s o n 3 1st March, 2008
I. Balances with RBI 1,500
Total 1,500 66
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Schedule 7 – Balances with banks & money at call
& short notice

A s o n 3 1st March, 2008
In India:
i) Balances with banks:
a) In current Accounts
b) In other deposit accounts
ii) Money at call & short notice

330
1,000
3,000
Total 4,330

Schedule 8 – Investment

A s o n 3 1st March, 2008
I. Investments in India:
i) Government securities
ii) Shares
iii) Debentures and bonds
iv) Subsidiaries and / or joint ventures
3,450
3,000
782
2,200
Total 9,432

Schedule 9 – Advances

A s o n 3 1st March, 2008
i) Bills purchased and discounted
ii) Cash credit, overdraft and loans
repayable on demand
iii) Terms loans 1,750
1,714.5

1,096
Total 4,560.5

Schedule 10 – Fixed Assets

A s o n 3 1st March, 2008
I) Premises: At cost
Additions during the year
Depreciation to date (350+153)
II) Other fixed assets (including
Furniture and fixtures) at cost
Deprecia tion to date (210 + 110) 860
900
(503)
1,300

(320)
Total (I + II) 2,237
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Schedule 11 – Other Assets

A s o n 3 1st March, 2008
i) Inter office adjustments (net)
ii) Interest accrued
iii) Tax paid in advance / tax deducted
at source
iv) Stationary and stamps
v) Non banking assets acquired in
satisfaction of claims 800
800
380

1,750
240
Total 3,970

Schedule 12 – Contingent Liabilities

A s o n 3 1st March, 2008
i) Claim against the bank not
acknowledge as debts
ii) Liability for partly paid investments
ii) Acceptance, endorsement and
other obligations 780

595
320
Total 1,695

Schedule 13 – Interest earned

A s o n 3 1st March, 2008
I) Interest / discount on advances /
bills
Discount on bills purchased
Interest on loans and advances
II) Income on investment
Interest on debentures and bonds
Dividend on shares
III) Interest on balances with RBI and
other inter bank Funds

960
1,940

500
350
840
Total 4,590







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Schedule 14 – Other income

A s o n 3 1st March, 2008
I) Commission on remittance and
transfer.
II) Profit on sale of investments
III) Profit on sale of land, buildings and
other assets
IV) Income earned by way of dividend
etc, from subsidiaries / companies
V) Miscellaneous income:
Rent received
Other miscellaneous income 730

650
1,100

830


310
400
Total 4,020

Schedule 15 – Interest expanded

A s o n 3 1st March, 2008
I) Interest on deposits:
II) Interest on RBI / inter bank
borrowings 930
630
Total 1,560

Schedule 16 – Operating Expenses

A s o n 3 1st March, 2008
I. Allowances to employees
II. Medical allowances
III. Staff providend fund
IV. Other provision for employees
V. Rent, taxes and lighting
VI. Expenses on books and forms
VII. Depreciation on banks property
(153 + 110)
VIII. Audit fees and expenses
IX. Postage and telephones
X. Insurance
XI. Other expenditure:
Subscription to periodicals 525
410
230
333
155
125
263

600
360
400

250
Total 3,651

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I. Provisions on Advances:
(Rs. In ‘000)
Assets Bills
Purchased &
Discounted Cash Cr.,
Overdraft,
loans Term
loans % of
provision Bills Purchased
& Discounted Cash Cr.,
Overdraft,
loans Term
loans
Standard Assets
Sub-standard Assets
Doubtful assets:
- upto 1 year
- 1 to 3 years
- More than 3 years
Loss Assets 1,030
800

--
--
--
-- 985
300

100
360
255
70 475
200

360
140
110
45 --
10%

20%
30%
50%
100% --
80

--
--
--
-- --
30

20
108
127.5
70 --
20

72
42
55
45
1 , 8 3 0 2 , 0 7 0 1 , 3 3 0 8 0 3 5 5 . 5 2 3 4

Total Provision on Advances = Rs. 669.5
II Interim dividend 1030,00,000 3,00,000100×=

III Provision on Tax = 2, 50,000

Illustration – 5

Kranti Bank Ltd. provides you the following balances as on 31st
March, 2007. Prepare profit and loss account and balance sheet
from the given balances and other information.

Particulars Amount
Annuity deposit
Matured time deposits
Pay slips and bankers cheques
Bills purchased and discounted
Borrowings from: PNB bank of India
Rajgrih co-operative bank
Statutory reserve fund
Profit and loss A/c (Credit)
Deposits repayable within 15 days notice (in India)
Deposits with Wilson Financial agency (in India)
Capital reserve
Saving bank deposits
Term loans
Prepaid Insurance
Non banking assets acquired in satisfaction of
claims
Remuneration for consultancy and other services
Land and building (cost Rs. 1,38,000)
Furniture and Fixtures (Cost Rs. 23,920)
Interest paid on deposits 18,81,630
13,85,980
46,000
6,80,110
46,000
69,000
32,200
23,000
23,460
5,29,000
92,000
9,30,580
32,75,200
161
691

46,000
94,300
16,790
28,750 70
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Cash balance
Balances with RBI
Share premium
Contingency fund
Repairs and maintenance of buildings
Directors fees, allowances and expenses
Payment to and provision for employees
Fees paid to statutory auditor
Traveling allowances
Postage and telephone
Advertisement and publicity
Other expenditure
Profit on exchange transaction
Income on investment
Investment in India: share capital of subsidiaries
Government bonds
Branch adjustment – A/c (Credit)
Share capital 1,93,200
1,84,000
5,000
27,600
19,320
4,600
2,990
2,990
3,910
1,380
1,380
690
4,600
1,20,750
2,34,600
2,31,380
17,940
8,00,000

Other Adjustments:

1. Authorized capital in equity shares of Rs. 100 each,
Rs. 16, 00,000. Issued, sub scr ibed and called up capital
Rs. 50 per share.
2. Bills accepted by bank of behalf of customer amounting
Rs. 33,000.
3. Depreciation on Land & building Rs. 3,680 and furniture
Rs. 1,610 is to be provided.
4. Transfer 20% of net prof it to statutory reserve.

Kranti Bank Ltd.
Balance Sheet as on 31st March 2007

S c h e d u l e
No. As on 31-3-07
Capital & Liabilities
Capital
Reserves & Surplus
Deposits
Borrowings
Other Liabilities and provisions
8,00,000
2,52,250
41,98,190
1,15,000
91,540
Total
1
2
3
4
5
54,56,980 71
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Assets
Cash and balances with RBI
Balances with banks and money at
call and short notice
Investments
Advances
Fixed Assets
Other assets
3,77,200
5,52,460

4,65,980
39,55,310
1,05,800
230
Total 54,56,980
Contingent Liabilities
Bills for collection
6
7

8
9
10
11

12
33,000


PROFIT & LOSS A/C FOR THE YEAR ENDED ON
31ST MARCH, 2007

S c h e d u l e
No. Year ended
31.03.07
I. Income:
Interest earned
Other Income
1,20,750
50,600
Total 1,71,350
II. Expenditure:
Interest expended
Operating expenses
Provisions and contingencies
28,750
42,550
Total 71,300
III. Profit / Loss:
Net Profit / Loss (-) for the year
Profit / Loss (-) brought forward
1,00,050
23,000
Total 1,23,050
IV. Appropriations:
Transfer to statutory reserves
Transfer to other reserves
Transfer to Government / proposed
dividend
Balance carried over to Balance Sheet
13
14


15
16

20,010
--
--

1,03,040

Schedule 1 – Capital
A s o n 3 1st March 2007

16,000,00

8,00,000

8,00,000 Authorized capital
16,000 shares of Rs. 100 each
Issue capital
16,000 shares of Rs. 50 each
Subscribed capital:
16,000 shares of Rs. 50 each
Called-up capital:
16,000 shares of Rs. 50 each
8,00,000 72
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Schedule 2 – Reserves and surplus

As on 31st March 2007
32,200
20,010
52,210 I. Statutory reserves:
Additions during the year
Total
II. Capital reserve
Opening balance
III. Shares Premium
Opening balance
IV. Revenue and other Reserves
V. Balance in profit and loss account 92,000


5,000

1,03,040
Total 2,52,250

Schedule 3 – Deposits

A s o n 3 1st March, 2007
I. Demand deposits: matured time
deposit
II. Savings bank deposits
III. Term deposits: Annuity deposit 13,85,980

9,30,580
18,81,630
Total 41,98,190

Schedule 4 – Borrowings

A s o n 3 1st March, 2007
I. Borrowings in India :
i) RBI
ii) Other Banks: PNB Bank of India
Rajgrih Co-operative Bank

46,000
69,000
Total 1,15,000

Schedule 5 – Other Liab ilities and provisions

A s o n 3 1st March, 2007
I) Bills payable: Pay slips and bankers’
cheques
II) Inter office adjustment
III) Others (including provisions)
- Contingency Fund 46,000

17,940

27,600
Total 91,540





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Schedule 6 – Cash and balances with RBI

A s o n 3 1st March, 2007
I. Cash in hand
II. Balances with RBI 1,93,200
1,84,000
Total 3,77,200

Schedule 7 – Balances with banks & money at call
& short notice

A s o n 3 1st March, 2007
In India:
i) Balances with banks:
ii) Money at call & short notice:
Deposits repayable within 15 days
notice
Deposits with Wilson financial agency


23,460

5,29,000
Total 5,52,460

Schedule 8 – Investment

A s o n 3 1st March, 2007
Investments in India:
Government bonds
Share capital of subsidiaries
2,31,380
2,34,600
Total 4,65,980

Schedule 9 – Advances

A s o n 3 1st March, 2007
Bills purchased and discounted
Terms loans 6,80,110
32,75,200
Total 39,55,310

Schedule 10 – Fixed Assets

A s o n 3 1st March, 2007
1,38,000
(47,380)
90,620

23,920

8,740 I) Premises: At cost
Depreciation to date (43,700 +
3,680)

II) Other fixed assets (including
Furniture and fixtures) At cost as
on 31st March of the preceding year.
Depreciation to date (7 ,130 + 1, 610)
15,180
Total (I + II) 1,05,800 74
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Schedule 11 – Other Assets

A s o n 3 1st March, 2007
Non banking assets acquired in
satisfaction of claims.
Prepaid Insurance 69

161
Total 230


Schedule 12 – Contingent Liabilities


A s o n 3 1st March, 2007
Bills accepted on behalf of customer 33,000


Schedule 13 – Interest earned


A s o n 3 1st March, 2007
Income on investment 1,20,750
Total 1,20,750


Schedule 14 – Other income


A s o n 3 1st March, 2007
I. Commission brokerage and
exchange:
Remuneration for consultancy and
other services
II. Profit on exchange transactions

46,000

4,600
Total 50,600


Schedule 15 – Interest expanded


A s o n 3 1st March, 2007
I) Interest paid on deposits: 28,750
Total 28,750




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Schedule 16 – Operating Expenses

A s o n 3 1st March, 2007
Payment to and provision for
employees
Advertisement and publicity
Depreciation on bank’s property
(3,680 + 1,610)
Director’s fees, allowances and
expenses
Fees paid to statutory auditor
Traveling expenses
Postage and telephone
Repairs and maintena nce of building
Other expenditure 2,990

1,380
5,290

4,600

2,990
3,910
1,380
19,320
690
Total 39,859

Summary:

A bank is a commercial instit ution, which accepts deposits
and repay on demand; lend; transfer and invest the money.
Banking companies are governed by Banking Regulation Act, 1949
and also subject to the companies Act, 1956.

Section 6 of the Banking Regu lation Act prescribes various
business of banking companies which includes borrowing, raising
or taking up of money, acting as on agent for any government or
local authority or any other pers on; contracting, guaranteeing and
so on. Also the banks are restrict ed to deal in buy ing, selling or
bartering of goods and also not allowed to engage in any trade
related to bills of exchange receiv ed for collection or negotiation or
such of its business.

The various accounting provisions regarding minimum
capital and reserves; restriction on commission, brokerage,
discount on sale of shares, rest rictions on payment of dividend,
statutory reserves, cash reserves and restrictions on loans and
advances given under various secti ons of Banking Regulation Act,
1949.

The banks keep subsidiary and principal books of accounts
to minimize the errors in maintaining records of voluminous
transactions.

The recommendation of Narsimham Committee report on
Non-performing Assets was accepted by RBI and accordingly
issued directives to all the bank s regarding income recognition,
assets classification and loan provisioning. The assets have been 76
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classified as standard assets, s ub-standard assets, doubtful assets
and loss assets and provisioning norms for each category is given.

The final accounts of bankin g companies are prepared as
per the formats given under form ‘A’ for balance sheet and form ‘B’
for profit and loss account. Out of 16 schedules, form A contains 12
schedules and form B contains the remaining 4 schedules.

EXERCISES:

Q.1 State whether the follo wings are True or False:

1) All nationalized Banks are governed by the Banking Regulation
Act.
2) Section 6 of the Banking Regulation Act, 1949 prescribes
requirements of minimum paid-up capital and reserves to be
maintained by banking companies.
3) It is voluntary for all Banking companies to publish their Balance
Sheet in newspapers.
4) The assets and liabilities of B a n k i n g C o m p a n i e s a r e s h o w n
vertically along with the figures of last year.
5) The commission, exchange and brokerage are shown in
Schedule 15 of the Bank’s Profit and loss account.
6) Every bank needs to create a reserve fund by transferring 20
percent of its annual profit afte r the declaration of dividend.
7) Money at call is refundable at 2 4 h o u r s ’ n o t i c e a n d m o n e y a t
short notice is refundable at 7 days notice.
8) The income from non-performi ng assets should not be taken
into profit and loss account unless income had been realized.
9) A credit facility is classified as non-performing if interest and / or
installment of principal have remained unpaid for two quarters
after it has become past due.
10) The assets which do not yield positive returns become non-
performing assets.

Answer: True - 1; 4; 7; 8; 9; 10;
F a l s e - 2 ; 3 ; 5 ; 6 ;

Q.2 Multiple choice Question

1) For internal purpose, banks may close their accounts on
________________.
i) 31st December 1.8 77
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ii) 30th June
iii) 31st March
iv) 30th September

2) The principal books of a bank ing company that gives the
summary of the receiving cashier’s counter cash books and
the paying cashiers counter cash book.
i ) G e n e r a l L e d g e r
i i ) S a v i n g B a n k a c c o u n t s l e d g e r
i i i ) C a s h b o o k
i v ) I n v e s t m e n t L e d g e r

3) The ___________ of section 29 of the Banking Regulation
Act, 1949 prescribes formats of Balance sheet and profit and
loss account of banking companies.
i ) T h i r d s c h e d u l e
i i ) S e c o n d s c h e d u l e
i i i ) S i x t h s c h e d u l e
i v ) F o u r t h s c h e d u l e

4) It is the last item to appear under ‘Capital and li abilities of the
Balance Sheet of a bank.
i ) R e s e r v e s a n d s u r p l u s
i i ) D e p o s i t s
i i i ) B o r r o w i n g s
i v ) O t h e r l i a b i l i t i e s a n d p r o v i s i o n .

5) It is shown by way of a f ootnote and details are given in
schedule 12.
i ) C o n t i n g e n t L i a b i l i t i e s
i i ) O t h e r A s s e t s
i i i ) I n v e s t m e n t s
i v ) O t h e r l i a b i l i t i e s a n d p r o v i s i o n s .

6) Bills purchased and discount ed are shown in _________ on
the Balance sheet of a Bank.
i ) S c h e d u l e 1 0
i i ) S c h e d u l e 8
i i i ) S c h e d u l e 9
i v ) S c h e d u l e 1 2
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7) Every Bank needs to maintain a cash reserves of at least
_________ of the total of it s demand and time liabilities.
i ) 3 p e r c e n t
i i ) 5 p e r c e n t
i i i ) 7 p e r c e n t
i v ) 2 0 p e r c e n t

8) In respect of sub-standard assets, a general provision of
___________ of the total outst anding should be created.
i ) 2 0 p e r c e n t
i i ) 1 0 p e r c e n t
i i i ) 3 0 p e r c e n t
i v ) N o n e o f t h e a b o v e

9) The assets which does not di sclose any problems and which
does not carry more than no rmal risk attached to the
business.
i ) S t a n d a r d a s s e t s
i i ) S u b - s t a n d a r d a s s e t s
i i i ) D o u b t f u l a s s e t s
i v ) L o s s a s s e t s

10) Section 20 of the Banki ng Regulation Act, 1949 deals with
_____________.
i) Cash Reserves
i i ) R e s t r i c t i o n s o n l o a n s a n d a d v a n c e s
i i i ) S t a t u t o r y R e s e r v e s
i v ) F i n a l a c c o u n t

Answers: 1 – iv; 2 – iii; 3 – I; 4 – iv; 5 – I; 6 – iii; 7 – I; 8 – ii;
9 – I ; 1 0 – i i .

Q.3 Match the following

A)
1) Principal Books a) Personal ledger
2) Contingent liabilities b) Schedule 11
3) Share Premium c) Cash book and General ledger
4) Subsidiary Books d) Reserves and surplus
e ) S c h e d u l e 1 2
f ) B i l l s p u r c h a s e d a n d d i s c o u n t e d

Answer: 1-c; 2-e; 3-d; 4-a 79
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B)
1) Income on investment a) Schedule 8
2) Stationery and st amp b) Schedule 2
3) Balance of prof it c) Schedule 5
4) Bills payable d) Schedule 11
e ) S c h e d u l e 1 3
f ) S c h e d u l e 1 6
Answer: 1-e; 2-d; 3-b; 4-c.

Q.4 D e f i n e B a n k i n g C o m p a n i e s a n d write a note on ‘Business of
banking companies.

Q.5 E x p l a i n t h e p r o v i s i o n s g i v en by Banking Regulation Act,
1949 with regard to following –
i) Statutory Reserve
ii) Minimum capital and Reserves
iii) Restrictions on Payment of Dividend

Q.6 E x p l a i n i n b r i e f t h e c l a s s i f i c a tion of assets and provisioning
of NPA.

Q.7 E x p l a i n t h e f o l l o w i n g t e r m s :
1) Non-banking assets
2) Doubtful assets and loss assets
3) Rebate on bills discounted
4) Bills for collection
5) Provisions and contingencies

Q.8 T h e a s s e t o f t h e B a n k i s b i f u r c a t e d a s p e r f o r m i n g a n d n o n -
performing assets and accordingl y income to be recognized.

Interest Earned Interest Received
Performing Assets
Cash credit and overdraft
Bills purchased and discounted
Term loans
Non-performing Assets
Cash credit and overdraft
Bills purchased and discounted
Term loans 10,50,000
2,10,000
1,68,000
2,10,000
1,40,000
1,05,000
8,68,000
2,10,000
1,12,000

16,800
28,000
7,000

Answer: Income Recognized – Rs. 14, 79,800.




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Q.9 T h e f o l l o w i n g a r e t h e b a l a n c e s of Armo Bank Ltd. for the
year ended 31st March, 2008.

Debit Balances Amount (Rs.)
Money at call and short notices
Constituents, Liability for acceptance & endorsement
Non-banking assets acquired in satisfaction of claims
Land and Building
Furniture and fixtures
Advances
Investment in Government bonds
Gold bullion
Other investment
Balances with RBI
Cash in hand
Interest accrued on investment
Interest on deposits
Bills receivable being bills for collection
Law charges
Loss on sale of building
Printing and stationery
Rent, taxes and lighting
Repairs and maintenance
Bills discounted and purchased
Directors Remuneration
Branch adjustment
Loss on sale of investment
Deposits with other Banks 1,82,000
3,95,500
14,000
35,000
4,55,000
14,00,000
13,60,590
1,05,910
10,89,410
2,16,300
1,08,150
1,72,340
55,650
3,04,500
35,000
7,000
350
1,48,400
8,400
87,500
84,000
1,40,000
2,10,000
5,25,000
Total 71,40,000


Credit Balances Amount (Rs.)
Term deposits from banks
Demand deposits
Share capital
Provision for depreciation on furniture & fixtures
Security deposits of employee
Statutory Reserves
Share Premium account
Borrowings from institutions and agencies
Profit and loss account
Rent received
Profit on bullion
Acceptance and endorsement 51,940
1,61,350
20,00,000
1,40,000
1,05,000
9,80,000
7,30,000
5,40,610
45,500
4,200
8,400
3,95,500 81
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Bills for collection
Commission, exchange and brokerage
Discount on advances
Other miscellaneous income
Current ledger control account
Interest on balances with RBI 3,04,500
1,77,100
2,94,000
18,900
6,79,000
5,04,000
Total 71,40,000

Adjustment:
1) Depreciation on Furniture and Fixtures for the year
amounted to Rs. 35,000 and propos ed dividend is 8 percent.
2) Transfer 20 percent to stat utory Reserve from the profit
earned during the year.
3) Rebate on bills discounted Rs. 35,000.
4) Current account ledger depict s credit balance Rs. 8, 54,000
after the overdrawn to the extent of Rs. 1, 75,000.
5) Liability for partly pai d investment Rs. 80,000.

Answer: C u r r e n t y e a r p r o f i t R s . 1 , 5 0 , 2 4 0
B a l a n c e s h e e t T o t a l R s . 5 8 , 9 1 , 2 0 0
Q.10 O n 3 1st M a r c h , 2 0 0 9 t h e f o l l o w i n g b a l a n c e s w a s e x t r a c t e d
from Oasis Bank Ltd. You are required to prepared profit and
loss account for the year ended 31st M a r c h 2 0 0 9 a n d a l s o
the balance sheet as on that date.

Particulars Amount (Rs.)
Capital Reserve
Interest accrued on Government Bonds
Bills for collection
Investment in Government Bonds
Investment in Gold bullion
Current Deposits
Reserve Fund
Interest and discount received
Profit and loss account (Credit Balance)
Brokerage, exchange and commission received
Capital
Loans and advances
Saving account
Cumulative and recurring deposits
Sundry creditors
Debts due to banks (secured)
Branch adjustments (Credit)
Balances : Cash and hand 1,50,000
26,125
9,95,500
55,000
1,32,000
25,02,500
6,87,500
3,19,000
46,860
96,525
4,00,000
22,93,500
9,08,600
19,34,900
25,025
6,71,000
2,50,525
71,885 82
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Cash with other banks
Liabilities for partly paid investment
Furniture and office equipment
Depreciation on assets
Interest paid on Inter-Bank borrowings
Brokerage, exchange and commission paid
Rebate on bills discounted
Non-banking assets
Customer’s liability for acceptance
Investments in shares
Payment to employees
Auditor’s fees
Repairs and maintenance
Advertisement and publicity
Premises
Current a/c balance with other Banks
Short notices with other institutions and Agencies 3,30,000
8,34,240
27,500
27,500
66,000
5,500
825
2,750
8,34,240
8,74,500
1,32,000
5,500
22,000
16,500
1,87,000
49,500
33,000

Additional Information:
1) The authorized capital of the bank is Rs. 800,000 divided
into 16,000 shares of Rs. 50 eac h. Out of this 8,000 shares
issued, subscribed and paid-up.
2) Current account includes Rs. 4, 67,500 debit balances being
overdraft. One of the a ccounts for Rs. 5,500 including
interest Rs. 550 is doubtful.
3) During the year, a property wa s acquired in satisfaction of a
claim amounting to Rs. 2,750 a nd was sold Rs. 1,980. The
loss resulting there from re mained unadjusted in the books.
4) Bank guaranteed Rs. 1, 00,000 on behalf of its constituents.
5) Provision for taxation is Rs. 55,000.

Answers: Provisions and contingencies – Rs. 59,950
P r o f i t f o r t h e c u r r e n t y e a r – R s . 6 3 , 4 0 4
B a l a n c e s h e e t t o t a l – R s . 8 1 , 7 9 , 4 9 0

Q.11 Y a s h o d a B a n k L t d . p r o v i d e s you the following balances you
are asked to prepare Profit and Loss account and Balance
Sheet.

Particulars Amount (Rs.)
Share capital
Statutory Reserves
Other Reserves
Term Loans 3,40,000
1,04,000
1,00,000
17,00,000 83
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Cash credit
Bills purchased
Rebate on bills discounted
Deposits from other Banks
Current deposits
Saving account
Legal charges
Repairs
Insurance on bank property
Entertainment expenses
Directors sitting fees
Printing charges
Rent and Taxes
Bonus and other staff benefits
Profit and loss account (credit Balances)
Interest paid on deposits
Discount on domestic Bills purchased
Commission received on letter of credit
Bank property
Cash with RBI
Interest received on loans and advances
Investments
Stationery and stamps
Cash with Exe Bank Ltd.
Income on investments 37,62,100
27,89,700
81,600
14,87,500
23,23,900
29,44,400
62,500
2,62,000
95,500
71,100
1,51,000
67,000
35,000
2,30,000
13,94,000
12,71,600
7,59,900
4,98,100
81,6,000
39,100
21,86,200
2,58,100
1,38,000
4,84,500
13,600

Other Information

1) The Bank provided d epreciation on its proper ty at the rate of
12 percent p.a.
2) Tax to be provided at 40 percent.
3) Directors declared dividend at 10 percent.
4) Liabilities on partly paid investment Rs. 81,600

Answer: P r o f i t f o r c u r r e n t y e a r R s . 2 2 , 5 1 , 3 4 4
B a l a n c e s h e e t t o t a l R s . 9 8 , 8 9 , 5 8 0


™™™™ 84
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ACCOUNTS OF INSURANCE COMPANIES


To Ascert ain Profit Or Loss Of The Life Insurance
Business
of


T h e b u s i n e s s o f I n s u r a n c e i n I n d i a i s g o v e r n e d b y T h e
Insurance Act, 1938 along with the r egulations framed by Insurance
Regulations and Development Authorities Act, 1999 (IRDA)

I n s u r a n c e i s a n a g r e e m e n t o r contract of indemnity between
‘insurer’ and ‘insured’. Insurer is one party agrees to provide
protection against loss or damage in the form of promise to pay for
such loss to other party known as ‘insured’ in consideration for a
fixed sum of money known as ‘premium’.

T h e t e r m s a n d c o n d i t i o n s o f s u ch insurance contract in the
written is called ‘Insurance Policy’.

Insurance are of the types –
I) Life Insurance
II) General Insurance
a) Fire insurance
b) Marine insurance
c) Miscellaneous insurance 2
Unit Structure
2.1 Introduction
2.2 Life Introduction Business
2.3 Statutory Boo ks and Subsidiary Books
2.4 Some Important Terms
2.5 Preparation of financial Statements
F o r m A - R A ; F o r m A - P L a n d F o r m A - B S
2.6 Illustrations
2.7 Procedure
2.7 General Insurance Business
2.8 S o m e I m p o r t a n t T e r m s
2.9 Preparation Financial Statements
Form B-RA; Form B-PL and Form B-BS
2.10 S u m m a r y
2.11 E x e r c i s e s
2.1 INTRODUCTION
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I n c a s e o f L i f e I n s u r a n c e , the insurer guarantees to pay a
certain sum of money to the assu red on completing a s t i p u l a t e d
period or in the event of the death to his l egal representative. It
covers risks and gives protection for the investment.

S e c t i o n 2 ( I I ) o f t h e I n s u r ance Act, 1938 has defined ‘Life
Insurance Business” as the busine ss of effecting. Contracts of
insurance upon human life, includi ng any contract whereby the
payment of money is assured on death or the happening of any
contingency dependent on human life, and any contract which is
subject to payment of premiums for a term dependent on human
life and shall be deemed to include

a) The granting of disability and doub le or triple indemnity accident
benefits, if so provided in the contract of insurance;
b) The granting of annuiti es upon human life; and
c) The granting of superannuati on allowances and annuities
payable out of any fund applicable solely to the relief and
maintenance of person engaged or who have been engaged in
any particular profession, trade or employment or of the
dependents of such persons.


A] Statutory Books –
The Insurance Act, 1938, require s the following books to be
maintained by all insurance company –
I. Register of Policies – It contains all the details in respect
of each policy such as nam e and address of the policy
holder, the date when the policy was effected and a record
of any assignment of the policy.
II. Register of claims – A l l t h e p a r t i c u l a r s o f c l a i m s a r e
recorded – date of claim, name and address of claimant,
the date on which the claim wa s discharged, the case of a
claim which is rejected and reasons for rejection.
III. Register of agents – I t c o n t a i n s a l l t h e i n f o r m a t i o n o f
licensed insurance agents such as name and address of
the agent, date of appointment, etc.
B] Subsidiary books –
Apart from statutory books, t he insurance companies also
maintain the following books 2.2 LIFE INSURANCE BUSINESS
2.3 STATUTORY BOOKS AN D SUBSIDIORY BOOKS 86
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I. Ledgers – Life insurance Fund ledger; revenue ledger
and miscellaneous ledger
II. Cash books – Receipts cash boo ks and expenditure cash
books.
III. Journal – J o u r n a l f o r r e c o r d i n g t r a n s a c t i o n a l r e l a t i n g t o
outstanding premium and claims and inter-departmental
transfer.
IV. First year premium book
V. Renewal premium book
VI. Surrender policy book


I. Whole life policy –
Policy under which, amount of policy is received only when
the insured expired.
II. Endowment policy –
Amount of policy received by the insured either he/she
reaches certain age or expi red whichever is earlier.
III. With profit policies -
Policy holder is entitled to shar e in profit of insurer along
with the guaranteed amount payable on maturity
IV. Without profit policies –
On maturity policy holder received only fixed sum of money
stated in the policy
V. Bonus –
The share of profit enjoyed by insured is called bonus –
a) ‘Reversionary bonus’ is one which is paid only on
maturity of the policy along with guaranteed amount.
b) ‘Bonus in cash’ is paid immediately
c) ‘Bonus in reduction of premium’ is normally adjusted
by policy holder against t he future premium due from
him.
d) ‘Interim bonus’ is paid on maturity of policy before
deciding the exact profit amount
VI. Premium –
First year’s premium is the premium paid for the first year
of the life insurance poli cy and premium paid for the
subsequent year is termed as r e n e w a l p r e m i u m . S i n g l e
premium is the total of all the premiums amount, paid by
the policy holder once at t he initiation of policy period
2.4 SOME IMPORTANT TERMS 87
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VII. Surrender value –
It is the amount which is life insurance company agrees to
pay when policy holder discont inue to pay further premium
and surrender the policy.
VIII. Claims –
It is the amount payable by an insurer against the policy
either on maturity (known as claim by maturity or
survivance) or on the death of the policy holder (known as
claim by death).
IX. Re-insurance –
Re-insurance is the transfer of part of risk by the insurance
company on another insur ance company. When the
insurance company find it diffi cult to carry risk involves
huge amount, it makes an arr angement for reinsurance by
giving away a part of its business to another company
(known as accepting company or re-insurance) and
receives commission from accepting company
X. Annuities –
The insurance company agree s to pay a fixed sum of
money at regular intervals of time to the policy holder
during a specified period in return for a lump sum paid in
advance known as annuities

OF FINANCIAL STATEMENTS

T h e f i n a n c i a l s t a t e m e n t o f the life insurance companies
consist of Revenue account, Pr ofit & loss account and Balance
sheet. These statements to be prepared in accordance with the
provisions of IRDA (Preparati on of Financial Statements and
Auditors’ Report of Insurance Co mpanies) Regulati ons, 2002 and
comply with the requirements of schedule ‘A’. The Insurer needs to
prepare Revenue A/C in form A-RA; profit & loss A/C inform A-PL
and Balance sheet in form A-BS.

T h e R e v e n u e a c c o u n t c o n t a i n s t o t a l 4 s c h e d u l e s - s c h e d u l e 1
– Premium; schedule 2- Commi ssion expenses; Schedule 3-
Operating expenses and schedule 4 – Benefits paid. It also shows
the items having no specific schedule such as Income from
Investments, Interim bonus paid; Provision for doubtful debts; tax
and such other provisions. The bottom section of Revenue account
exhibits appropriators of surplus such as transfer to shareholders
accounts, transfer to other reserv es, etc. The remaining balance of
revenue account is transferred to life Insurance Fund account.

T h e p r o f i t a n d l o s s a c c o u n t s hown all expenses and income
not directly related to Insurance business 2.5. PREPARATION 88
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T h e B a l a n c e S h e e t o f l i k e insurance companies are
prepared in ‘vertical form’ having t oo sections – sources of fund and
application of fund. The schedule 5,6 and 7 deals with sources of
fund and schedule 8 to schedule 15 s hows the application of Fund.
The contingent liabilities is discl osed as part of financial statement
by way of notes to Balance Sheet.

FROM A-RA
Name of the Insurer:
Registration No. and Date of Registration with the India:

Revenue Account for the year ended 31st March, 20…
Policyholder’s Account (Technical account)

Particulars s c h e
dule Current
Year
(RS’000) Previous
Year
(Rs’000)
Premiums earned – net
(a) Premium 1
(b) Re-insurance ceded
(c) Re-insurance accepted
Income from investments
(a) Interest, Dividends and
Rent –Gross
(b) Profit on sale / redemption
of Investments
(c) (Loss on sale / redemption
of Investments)
(d) Transfer / Gain on
revaluation /change in fair
value*
Other Income (to be specified)
T o t a l ( A )
Commission 2
Operating Expenses related to
Insurance Business 3
Provision for doubtful debts
Bad debts written off
Provision for tax 89
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Provision (other than taxation)
(a) For diminution in the value
of investment (Net)
(b) Other (to be specified)
T o t a l ( B )
Benefits Paid (Net) 4
Interim Bonuses Paid
Change in valuation of liability
in respect of life policies
(a) Gross**
(b) Amount ceded in
Reinsurance
(c) Amount accepted in
Reinsurance
T o t a l ( c )
Surplus / (Deficit( (D) = (A) - (B) - (C)
Appropriations
Transfer to Shareholders’
Accounts
Transfer to other Reserves (to
be specified)
Balance being Funds for
Future appropriations
T o t a l ( D )

Notes:
* Represents the deemed realized ga in as per norms specified by
the authority.
** Represents Mathematical Rese rves after allocation of bonus.
The total surplus shall be disclos ed separately with the following
details:
a) Interim bonuses Paid;
b) Allocation of Bonus to Policyholders;
c) Surplus shown in the Revenue Account;
d) Total Surplus [( a) + (b) + (c)].
See Notes appended at the end of Form A-PL.


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FROM A-PL

Name of the Insurer:
Registration No. and Date of Registration with the IRDA:
Profit and Loss Account for the year ended 31st March, 20..
Shareholders’ Account (Non-technical Account)


Particulars Sche
dule Current
Year
(RS’000) Previous
Year
(Rs’000)
Amounts transferred from /to
the Policyholders’ Account
(Technical account)
Income from investments
(a) Interest, dividends and
Rent – Gross
(b) Profit on sale /redemption
of Investments
(c) (Loss on sale/ redemption
on Investments)
Other income (to be specified)
T o t a l ( A )
Expenses other than those
directly related to the insurece
business
Bal debts written off
Provisions (other than
taxation)
(a) For diminution in the value
of investments (Net)
(b) Provisions for doubtful
debts
(c) Others (to be specified)
T o t a l ( B )
Profit / (Loss) before tax
Provision for Taxation
Profit / (Loss) after tax
Appropriations
(a) Balance at the beginning
of the year
(b) Interim dividends paid
during the year
(c) Proposed final dividend
(d) Dividend distribution on tax 91
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(e) Transfer to reserves/ other
accounts (to be specified)
Profit carried… to the Balance
Sheet

Notes to Form A-RA and A-PL:
(a) Premium income received from business concluded in and
outside India shall be separately disclosed.
(b) Reinsurance premiums w hether on business ceded or
accepted are to be brought into a c c o u n t g r o s s ( i . e . b e f o r e
deducting commissions) under the head reinsurance
premiums.
(c) Claims incurred shall comprise claims paid, specific claims
settlement costs wherever applicable and change in the
outstanding provision for claims at the year end.
(d) Items of expenses and income in excess of one per cent of the
total premiums (less re-insurance) or Rs. 5,00,000 whichever is
higher, shall be shown as a separate line item.
(e) Fees and expenses connected with claims shall be included in
claims.
(f) Under the sub-head “ Others” shall be included items like foreign
exchange gains or loss es and other items.
(g) Interest, dividends and rentals receivable in c onnection with an
investment should be stated as gross amount, the amount of
income-tax deducted at source being included under “advance
taxes paid and taxes deducted at source”.
(h) Income from rent shall include only the realized rent. It shall
not include any notional rent.









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FORM A-BS

Name of the Insurer:
Registration No. and Date of Registration with the IRDA:

Balance Sheet as at 31st March, 20 …


Particulars s c h e
dule Current
Year
(RS’000) Previous
Year
(Rs’000)
SOURCES OF FUNDS
Shareholders’ Funds:
Share Capital 5
Reserves and Surplus 6
Credit / [Debit] Fair Value
Change Account
Sub total
Borrowings 7
Policyholders’ Funds:
Credit/ [Debit] Fair Value
Change Account
Policy Liabilities
Insurance Reserves
Provision for Linked Liabilities
Sub Total
Funds for Future
Appropriations
T o t a l
APPLICATION OF FUNDS
Investments
Shareholders’ 8
Policyholders’ 8a
Assets Held to Cover Linked
Liabilities 8b
Loans 9
Fixed Assets 10
Current Assets 93
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Cash and Bank Balances 11
Advances and other Assets 12
Sub total
(A)
Current Liabilities 13
Provisions 14
Sub total
(B)
Net Current Assets (C) = (A)-
(B)
Miscellaneous Expenditure (to
the extent not written off or
adjusted) 15
Debit balance in profit and loss
account (Shareholders’
Account)
Total

CONTINGENT LIABILITIES


Particulars Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Partly paid-up investments
2. Claims, other than against policies, not
acknowledge as debts by the company
3. Underwriting commitments outstanding (in
respect of shares and securities)
4. Guarantees given by or on behalf of the
company
5. Statutory demands/liabilities in dispute, not
provided for
6. Reinsurance obligations to the extent not
provided for in accounts
7. Others (to be specified)


Total

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SCHEDULES FORMING PART OF FINANCIAL STATEMENTS
SCHEDULE 1
Premium


Particulars Current
Year
(RS’000) Previous
Year
(Rs’000)
1. First year premiums
2. Renewal premiums
3. Single premiums
Net Premium
Total Premiums

SCHEDULE 2
Commission Expenses


Particulars Current
Year
(RS’000) Previous
Year
(Rs’000)
Commission paid
Direct First year premiums
Renewal premiums
Single premiums
Add: Commission on Re-insurance Accepted
Less: Commission on Re-insurance Ceded
Net commission

Note : The profit/commission, if any, are to be combined with the
Re-insurance accepted or Re-insurance ceded figures.








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SCHEDULE 3
Operating Expenses Related to Insurance Business


Particulars Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Employees’ remuneration and welfare
benefits
2. Travel, conveyance and vehicle running
expenses
3. Training expenses
4. Rents, rates and taxes
5. Repairs
6. Printing and stationery
7. Communication expenses
8. legal and professional changes
9. Medical fees
10. Auditors’ fees, expenses etc.
(a) as auditor
(b) as adviser or in any other capacity, in
respect of
i. taxation matters
ii. insurance matters
iii. management services, and
(c) in any other capacity
11. Advertisement and publicity
12. Interest and Bank Changes
13. Others (to be specified)
14. Depreciation
Total

Note: Items of expenses and income in excess of one per cent of
the total premiums (less reinsuranc e) or Rs. 5,00,000 whichever is
higher, shall be shown as a separate line item.




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SCHEDULE 4
Benefits Paid (Net)


Particulars Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Insurance Claims
(a) Claims by Death
(b) Claims by Maturity
(c) Annuities/ Pension Payments
(d) Other Benefits, specify
2. (Amounts ceded n reinsurance):
(a) Claims by Death
(b) Claims by Maturity
(c) Annuities / Pension Payments
(d) Other Benefits, specify
3. Amount accepted in reinsurance:
(a) Claims by Death
(b) Claims by Maturity
(c) Annuities / Pension Payments
(d) Other Benefits, specify
Total

Note:
(a) Claims include specific claims s e t t l e m e n t c o s t s , w h e r e v e r
applicable.

(b) Legal and other fees and expens es shall also form part of the
claims cost, wherever applicable.









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SCHEDULE 5
Share Capital

Particulars Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Authorized capital
Equity shares of Rs….. each
2. Issued capital
Equity shares of Rs…..each
3. Subscribed capital
Equity shares of Rs…..each
4. Called-up capital
Equity shares of Rs….. each
Less: Calls unpaid
Add: Shares forfeited (amount originally paid
up)
Less: Par value of Equity Shares bought back
Less: Preliminary Expenses
Expenses including commission or brokerage on underwriting or subscription of shares
Total
Note:
(a) Particulars of the different classes of capital should be
separately stated.
(b) The amount capitalized acc ount of issue of bonus shares
should be disclosed.
(c) In case any part of the capi tal is held by a holding company,
the same should be separately disclosed.

SCHEDULE 5A
Pattern of Shareholding [As certified by the Management]
Current Year Previous Year
Particulars Number
of Shares% of
Holding Number
of Shares% of
Holding
1. Promoters
Indian
Foreign 2. Others
Total
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SCHEDULE 6
Reserves and Surplus


Particulars
Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Capital Reserve
2. Capital Redemption Reserve
3. Share Premium
4. Revaluation Reserve
5. General Reserves
Less: Debit balance in profit and
loss account, if any
Less: Account utilized for buyback
6. Catastrophe Reserve
7. Other Reserve (to be specified)
8. Balance of profit in profit and loss
account
Total

Note: Additions to and deductions fr om the reserves shall be
disclosed under each of the specified heads.

SCHEDULE 7
Borrowings

Particulars
Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Debentures / Bonds
2. Banks
3. Financial Institutions
4. Others (to be specified)
T o t a l
Note:
(a) The extent to which the borrowing are secured shall be
separately disclosed stating the nature of the security under
each sub-head.
(b) Amounts due within 12 months from the date of balance sheet
should be shown separately.
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SCHEDULE 8
Investments – Shareholders

Particulars Current
Year
(RS’000) Previous
Year
(Rs’000)
LONG TERM INVESTMENTS
1. Government securities and
Government guaranteed bonds
including Treasury Bills
2. Other Approved Securities
3. Other Investments
(a) Shares
(aa) Equity
(bb) Preference
(b) Mutual funds
(c) Derivative instruments
(d) Debentures/ Bonds
(e) Other securities (to be specified)
(f) Subsidiaries investment properties
– Real Estate
4. Investments in infrastructure and
Social Sector
5. Other than approved investments
SHORT TERM INVESTMENT
1. Government securities and
Government guaranteed bonds
including Treasury Bills
2. Other approved securities
3. Other investments
a) Shares
(aa) Equity
(bb) Preference
b) Mutual funds
c) Derivative instruments
d) Debentures/ Bounds
e) Other securities (to be
specified)
f) Subsidiaries
g) Investment properties – Real
Estate
4. investments in infrastructure and
social sector
5. Other than approved investments
T o t a l
NOTE: See Notes appended at the end of schedule 8B. 100
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SCHEDULE 8A
Investments – Policyholders

Particulars Current
Year
(RS’000) Previous
Year
(Rs’000)
LONG TERM INVESTMENTS
1. Government securities and
Government guaranteed bonds
including Treasury Bills
2. Other Approved Securities
3. Other Investments
a) Shares
(aa) Equity
(bb) Preference
b) Mutual funds
c) Derivative instruments
d) Debentures/ bonds
e) Other securities (to be specified)
f) Subsidiaries
g) Investment properties – Real
Estate
4. Investments in infrastructure and
social sector
5. Other than approved investments
SHORT TERM INVESTMENT
1.Government securities and
Government guaranteed bonds
including Treasury Bills
2. Other approved securities
3. Other investments
a) Shares
(aa) Equity
(bb) Preference
b) Mutual funds
c) Derivative instruments
d) Debentures/ Bonds
e) Other Securities (to be specified)
f) Subsidiaries
g) Investment properties – Real
Estate
4. Investments in infrastructure and
social sector
2. Other than approved investments
T o t a l
Note: See Notes appended at the end of Schedule 8B. 101
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SCHEDULE 8B
Assets Held to Cover Linked Liabilities

Particulars C u r r e n t
Year
(RS’000) Previous
Year
(Rs’000)
LONG TERM INVESTMENTS
1. Government securities and
Government guaranteed bonds
including Treasury Bills
2. Other Approved Securities
3. Other Investments
(a) Shares aa) Equity bb)
Preference
(b) Mutual funds
(c) Derivative instruments
(d) Debentures/ bonds
(e) Other securities (to be
specified)
(f) Subsidiaries
(g) Investment properties –Real
Estate
4. Investments in infrastructure and
social sector
5. Other than approved investments
SHORT TERM INVESTMENT
1. Government securities and
Government guaranteed bonds
including Treasury Bills
2. Other approved securities
3. Other investments
a) Shares (aa) Equity
(bb) Preference
b) Mutual funds
c) Derivative instruments
d) Debentures/ Bounds
e) Other securities (to be specified)
f) Subsidiaries
g) Investment properties – Real
Estate
4. Investments in infrastructure and
social sector
5. Other than approved investments
T o t a l
Note (applicable to Schedules 8, 8A and 8B): 102
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a) Investments in subsidiary /hol ding companies, joint ventures
and associates shall be separately disclosed, at cost.
I. Holding company and subsidiary shall be construed as
defined in the Companies Act, 1956.
II. Joint venture is contractual a r r a n g e m e n t s w h e r e b y t w o o r
more parties undertake an economic activity, which is
subject to joint control.
III. Joint control is the contractually agreed sharing of power to
govern the financial and operati ng policies of an economic
activity to obtain benefits from it.
IV. Associate is an enterprise in which the company has
significant influence and which is neither a subsidiary nor a
joint venture of the company.
V. Significant influence (f or the purpose of this schedule)means
participation in the fi nancial and operating policy decisions of
a company, but not control of those polices. Significant
influence may be exercised in several ways, for example, by
representation on the boar d of directors, participation in the
policymaking process, material inter-company transactions,
interchange of managerial personnel or dependence on
technical information. Signific ant influence may be gained by
share ownership, statute or a g r e e m e n t . A s r e g a r d s s h a r e
ownership, if an investor holds, directly or indirectly though
subsidiaries, 20 per cent or more of the voting power of the
investee, it is presumed t hat the investor does have
significant influence, unless it c a n b e c l e a r l y d e m o n s t r a t e d
that this is not the case. Conv ersely, if the investor hold,
directly or indirectly thr ough subsidiaries, less than 20 per
cent of the voting power of t he investee, it is presumed that
the investor does not have signifi cant influence, unless such
influence is clearly demonstrated. A substantial or majority
ownership by another investor does not necessarily preclude
an investor from having significant influence.
b) Aggregate amount of co mpany’s investment other than listed
equity securities and derivative instruments and also the
market value thereof shall be disclosed.
c) Investment made out of Catast rophe reserve should be shown
separately.
d) Debt securities will be considered as “held to maturity”
securities and will be measured at historical cost subject to
amortization.
e) Investment Property means a pr operty (land or building or part
of a building or both) held to ear n rental income or for capital
appreciation or for both use in services or for administrative
purposes. 103
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f) Investments maturing within twelve months from balance sheet
date and investments made with t he specific intention to
dispose of within twelve months from balance sheet date shall
be classified as short-term investments.

SCHEDULE 9
Loans


Particulars
Current
Year
(RS’000) Previous
Year
(Rs’000)
1.SECURITY-WISE CLASSIFICATIONS
Secured
a) On mortgage property
(aa) in India
(bb) outside India
b) Shares, Bonds, Government
securities etc.
c) Loans against policies
d) Others (to be specified)
Unsecured
T o t a l
2. BORROWER-WISE CLASSIFICATION
a) Central and state government
b) Banks and financial institutions
c) Subsidiaries
d) Companies
e) Loans against policies
f) Other (to be specified)
T o t a l
3.PERFORMANCE-WISE
CLASSIFICATION
a) Loans classified as standard
(aa) in India
(bb) outside India
a) Non-standard loans less
provisions
(aa) in India
(bb) outside India
T o t a l
4. MATURITY-WISE CLASSIFICATION
a) short-term
b) long-term
T o t a l

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Notes:
a) Short-term loans shall inclu de those, which are repayable
within 12 months fr o the date of balance sheet. Long-term
loans shall be the loans other than short-term loans.
b) Provisions against non-performi ng loans shall be shown
separately.
c) The nature of the security incase of all long-term secured loans
shall be specified in each case. Secured loans for the purposes
of this schedule, means loans secured wholly or partly against
an asset of the company.
d) Loans considered doubtful and t he amount of provision created
against such loans shall be disclosed.
SCHEDULE 10
Fixed Assets
particular Cost / Gross Block Depreciation Net Block
O p e n i n g a d d i t i o n s d e d u c t i ons closing Up to
last
Year For
the
Year On Sales /
Adjustment To
Date As at
year
and Previous
year
Goodwill
Intangibles
(specify)
Land-
freehold
Leasehold
Property
Buildings
Furniture and
Fittings
Information
Technology
Equipment
Vehicles
Office
Equipment
Others
(specify
nature)
Total
Work in
progress
Grand total
Previous
Year

Note: Assets included in land, property and building above exclude
Investment Properties as defi ned in note (e) to Schedule 8. 105
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SCHEDULE 11

Cash and Bank Balances


Particulars
Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Cash (including cheques, drafts and
stamps)
2. Bank Balance
a) Deposit accounts
(aa) Short term (due within 12
months of the date of balance
sheet)
(bb) Others
b) Current accounts
c) Others (to be specified)
3. Money at call and short notice
a) With banks
b) With other institutions
4. Others (to be specified)
T o t a l
Balance with non-scheduled banks
included in 2 and 3 above
CASH AND BANK BALANCES
1. In India
2. Outside India
T o t a l

Note : Bank balance may include remittanc es in transit. If so, the
nature and amount shall be separately stated.








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SCHEDULE 12
Advances and Assets


Particulars
Current
Year
(RS’000) Previous
Year
(Rs’000)
ADVANCES
1. Reserve deposits with ceding
companies
2. Application money for investments
3. Prepayments
4. Advances to Directors / officers
5. Advance tax paid taxes deducted at
source (net provision for taxation)
6. Others (to be specified)
Total
(A)
OTHERS ASSETS
1. Income accrued on investments
2. Outstanding Premiums
3. Agents’ Balance
4. Foreign Agencies Balance
5. Due from other entities carrying on
insurance business (including
reinsures)
6. Due from subsidiaries / holding
company
7. Deposit with Reserve Bank of India
(pursuant to Section 7 of Insurance
Act, 1938)
8. Others (to be specified)
Total
(B)
Total
(A+B)
Notes:
a) The items under the above heads s h a l l n o t b e s h o w n n e t o f
provisions for doubtful amounts. T h e a m o u n t o f p r o v i s i o n
against each head should be shown separately. 107
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b) The term ‘offer’ should conform to the definition of that term as
given under the Companies Act, 1956.
c) Sundry debtors will be show n under item 8 (Others).

SCHEDULE 13
Current Liabilities


Particulars
Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Agents’ Balance
2. Balance due to other insurance
companies
3. Deposits held on re-insurance ceded
4. Premium received in advance
5. Unallocated premium
6. Sundry creditors
7. Due to subsidiaries / holding
company
8. Claims outstanding
9. Annuities due
10. Due to officers / directors
11. Others (to b specified)
Total

SCHEDULE 14
Provisions


Particulars
Current
Year
(RS’000) Previous
Year
(Rs’000)
1. For taxation (less payments and
taxes deducted at source)
2. For proposed dividends
3. For dividend distribution tax
4. Others (to be specified)
T o t a l



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SCHEDULE 15

Miscellaneous Expenditure (To the extent not written off a
adjusted)


Particulars
Current
Year
(RS’000) Previous
Year
(Rs’000)
1. Discount allowed in issue of shares /
debentures
2. Others (to be specified)
T o t a l


Notes:
a) No item shall be included under the head “Miscellaneous
Expenditure” and carried forward unless:

1. some benefit form the expenditure can reasonably be
expected to be received in future, and
2. the amount of such benef it is reasonably determinable.

b) The amount to carried forward in respect of any included under
the head “Miscellaneous Expenditu re” shall not exceed the
expected future revenue / other benefits related to the
expenditure.

PROBLEMS

Illustration 1

From the following balances of the Axis Life assurance
Company Ltd., prepare its revenue account and balance sheet for
the year ended 31st March 2006.


Life Assurance Fund at the beginning of the year 2,60,000
Claims admitted but not paid 780
Interest, dividend and rent received 9,100
Loans on life interest 26,000
Loans of mortgages 46,800
Claims by death 7,800
Claims by maturity 13,000
Single premium 10,400
Government securities 1,30,000 2.6. SOLVED 109
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Registration and other fees received 260
Surrenders 2,600
Investment fluctuation account 1,300
Considerations for annuities granted 6,500
Deprecation on furniture 390
Provision for depreciation 390
Loans on policies 39,000
Amount due from other insurance company 468
Annuities due 260
Free hold property and furniture 13,390
Salaries 390
Directors fees 39
Promotional expenses 182
Audit fees 195
Law charges 130
Postage and stationary 1404
Office expenses 4680
Bank balance 21892
Commission on Re-insurance accepted 3120
Outstanding premium 3120
Interest accrued on investment but not due 390
Renewal premiums 26,000


Solution

Revenue A/C for the year ended 31st March, 2006


Particulars Schedule Amount
(Rs) Amount
(Rs)
Premiums earned-net premium 1 36,400
Income from investment:
Interest, dividend and rent 9 , 1 0 0
Consideration for annuities
granted 6 , 5 0 0 1 5 , 6 0 0
Other income:
Registration and other fees
received 2 6 0
Total (A) 5 2 , 2 6 0 110
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Commission 2 3.120
Operating expenses related to
Insurance Business 3 7,410
Total (B) 1 0 , 5 3 0
Benefit paid (Net) 4 23,400
Total (C) 2 3 4 0 0
Surplus / (Deficit) (D) = (A)-(B)-
(C) 1 8 , 3 3 0

Balance Sheet as at 31st March 2006

Particulars Schedule Amount
(Rs) Amount
(Rs)
SOURCES OF FUNDS
Shareholders fund:
Share capital 5 -
Reserves and surplus 6 2,79,630
Borrowings 7 -
Total 2,79,630

APPLICATION OF FUNDS
Investments 8 1,30,000
Loans 9 1,11,800
Fixed Assets 10 13,000 2,54,800
Cash and bank balance 11 21,892
Advances and other Assets 12 3,978
Sub-Total (A) 2 5 , 8 7 0

Current liabilities 13 1,040
Sub-Total (B) 1 , 0 4 0
Net Current Assets (C) = (A - B) 24830
Total 2,79,630



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SCHEDULE 1
Premium

Particulars Amount (Rs)
Renewal premiums 26,000
Single premium 10,400
Total premium 36,400

SCHEDULE 2
Commission Expenses

Particulars Amount (Rs)
Commission on Re- insurance accepted 3,120
Net commission 3,120

Schedule 3
Operating Expenses Related to Insurance Business

Particulars Amount (Rs)
Salaries 390
Directors fees 39
Postage and stationery 1,404
Law charges 130
Audit fees 195
Promotional expenses 182
Office expenses 4,680
Deprecation on furniture 390
Total 7,410

SCHEDULE 4
Benefit Paid (Net)

Particulars Amount (Rs)
Insurance claims
a) Claims by death 7800
b) Claims by maturity 13000
c) Surrenders 2600
Total 23400
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SCHEDULE 6
Reserves and surplus

Particulars Amount (Rs)
Life assurance fund 2,60,000
Investment fluctuation account 13000
Surplus 18330
Total 279630

SCHEDULE 8
Investments – shareholders

Particulars Amount (Rs)
Government securities 1,30,000
Total 1,130,00

SCHEDULE 9
Loans

Particulars Amount (Rs)
Loans on mortgages 4,6,800
Loans on life interest 26,000
Loans on policies 39,000
Total 111800

SCHEDULE 10
Fixed Assets

Particulars Amount (Rs)
Free hold property and furniture 13390
less depreciation 390
Total 13,000

SCHEDULE 11
Cash and bank balance

Particulars Amount (Rs)
Bank balance 21,892
Total 21892
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SCHEDULE 12
Advances and Assets

Particulars Amount (Rs)
Interest accrued on inve stment but not due 390
Outstanding premium 3,120
Due from other insurance companies 468
Total 3978

SCHEDULE 13
Current liabilities

Particulars Amount (Rs)
Claims admitted but not paid 780
Annuities due 780
Total 1040

Illustration 2

Following are the bal ance available for the year ended 31st
March 2007 of Nutan Life Insurance Company Ltd. You are
required to prepare revenue account and balance sheet for the year
ended 31st March 2007.

Particulars Amounts (Rs)
Insurance claims
Claims by death 1,95,000
Claims by maturity 56,250
Other benefits 99,690
General reserve 15,70,560
Life Assurance fund of the begging of the year 31,41,126
First year premium 13,8,126
Traveling and conveyance 31,840
Interest dividend and rent received 15,7,383
Cash and bank balance 20,7,270
Office building 5,00,000
Office equipment 2,00,000 114
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Outstanding premium 1,46,380
Advances to directors 1,57,650
Other sundry assets 1,20,300
Loans against policies 5,02,780
Surrenders 65,304
Employees remuneration and welfare benefit 20,000
Training expenses 17,830
Single premium 67,3590
Interest and bank charges 20,000
Agents balances (Dr) 2,95,500
Deposit with RBI 2,00,000
Commission on re-insurance accepted 1,09,623
Consideration for annuities granted 31,860
Amount due to other insurance companies 87,000
Agents balance outstanding 1,00,191
Subscribed and paid up capital 20,00,000
Brokerage on underwriting of shares 2000
Government bonds 33,81,670
Investment in other approved securities 10,00,000
Investment in mutual fund 16,90,800
Claims outstanding 1,20,051


Adjustments –
Interest dividend and rents ou tstanding (NET) Rs. 35000 and
interest and rent accrued Rs. 65,300.
Depravation on office building Rs. 40,000 and on office equipment
Rs. 10,000.
Bonus utilized in reduction of premium Rs. 14,500
Insurance claims arises due to the death of policy holder
Rs. 80,000.




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Solution

Revenue Account for the year ended 31st March 2007

Particulars Schedule Amount
(Rs) Amount
(Rs)
Premiums earned – net
Premium 1 8,26,216
Income from other investments
Interest, dividend and rent 1 , 5 7 , 3 8 3 Add: outstanding and accrued
consideration for annuities
granted
1,00,300
2,57,683
31,860
Total (A) 11,15,759
Commission 2 1,09,623
Operating expenses related to
Insurance Business 3 1,39,670
Total (B) 2 , 4 9 , 2 9 3
Bonus paid 4 4,96,244
Bonus utilized in reduction of
premium 1 4 , 5 0 0
Total (C) 5 , 1 0 , 7 4 4
3,55,752 Surplus/ (Deficit) (D) = (A)-(B)-
(C)


Balance Sheet as at 31st March 2007

Particulars Schedule Amount
(Rs)
SOURCES OF FUND
Shareholders fund
Share capital 5 19,98,000
Reserves and surplus 6 50,67,408
Sub-Total 70,65,408
Total 70,65,408 116
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APPLICATION OF FUND
Investments : Shareholders 8 50,72,470
Loans 9 5,02,780
Fixed assets 10 6,50,000
62,25,250
Current assets
Cash and bank balance 11 2,07,270
Advances and other assets 12 10,20,130
Sub-Total (A) 12,27,400

Current liabilities 13 3,87,242
Sub-Total (B) 3,87,242
Net Current Assets (C) = (A – B) 8,40,158
Total 70,65,408

SCHEDULE 1
Premium

Particulars Amount (Rs)
First year premium 1,38,126
Single premium 6,73,590
Add: Bonus utilized in reduction of premium 14,500
Total premiums 826216

SCHEDULE 2
Commission expenses

Particulars Amount (Rs)
Commission on re-insurance accepted 1,09,623
Net commission 1,09,623





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SCHEDULE 3
Operating Expenses Related to Insurance Business

Particulars Amount (Rs)
Employee’s remuneration and welfare benefit 20,000
Traveling and conveyance 31,840
Training expenses 17,830
Interest and bank charges 20,000
Depreciation on office building 40,000
Depreciation on office equipment 10,000
Total 1,39,670

SCHEDULE 4
Benefit Paid (Net)

Particulars Amount (Rs)
Insurance claims
Claims by death 1,95,000
Add: further claims arises due to death 80,000
2 , 7 5 , 0 0 0
Claims by maturity 56,250
Surrenders 65,304
Other benefit 99,690
Total 4,96,244

SCHEDULE 5
Share Capital

Particulars Amount (Rs)
Subscribed and paid up capital 20,00,000
Less: brokerage on underwriting of shares 2000
Total 19,98,000







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SCHEDULE 6
Reserves and Surplus

Particulars Amount (Rs)
Life Assurance fund at the begi nning of the year 31,41,126
General reserves 15,70,560
Surplus 3,55,722
Total 50,67,408

SCHEDULE 8
Investments

Particulars Amount (Rs)
Government bonds 33,81,670
Other approved securities 10,00,000
Investment in mutual fund 6,90,800
Total 50,72,470

SCHEDULE 9
Loans

Particulars Amount (Rs)
Loans against policies 5,02,780
Total 5,02780

SCHEDULE 10
Fixed Assets

Particulars Amount (Rs)
Office building 5,00,000
Less depreciation 40,000 4,60,000
Office equipment and furniture 2,00,000
Less depreciation 10,000 1,90,000
Total 6,50,000






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SCHEDULE 11
Cash and Bank Balance

Particulars Amount (Rs)
Cash and Bank balance 2,07,270
Total 2,07,270

SCHEDULE 12
Advances and Assets

Particulars Amount (Rs)
Advances of directors 1,57,650
Sundry assets 1,20,300
Interest, dividend and rent accrued 65,300
Interest, dividend and rent outstanding 35,000
Agents balance 2,95,500
Outstanding premium 1,46,380
Deposit with RBI 2,00,000
Total 10,20,130

SCHEDULE 13
Current Liabilities

Particulars Amount (Rs)
Agents balances 1,00,191
Amount due to other insurance
companies 87,000
Claims outstanding 1,200,51
Add: further claims arises due to
death 80,000 2,0,051
Total 3,87,242


Illustration 3

Prepare Revenue account and Balance sheet from the
following balance of Sanjivani Life Insurance Company Ltd. for the
year ended 31st March 2005.



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Debit:

Particulars Amounts (Rs)
Agents balances owing 2,10,000
Repairs 10,000
Furniture and fittings 2,00,000
Loans on government securities 11,00,990
Amount due from other In surance Company 3,30,000
Commission on re0insurnace accepted 62,390
Deposits with ceding companies 11,00,000
Surrenders less assurance 5,25,000
Interim bonus paid 2,10,000
Sundry debtors 4,35,000
Commission paid for single premium 77,600
Buildings 6,50,000
Printing and stationary 12,000
Insurance claim : claim by maturity 23,41,900
Claim by death : 7,66,400
Outstanding premium 3,32,100
Auditors fees 25,000
Investment in government bonds 22,75,100
Re-insurance accepted claims by maturity 8,11,900
Preliminary expenses 11,000
Investment in infrastructure bonds 10,81,000
Bank balance 4,33,300
Advertisement 41,000
Re-insurance irrecoverable 35,000
Total 1,36,76,680






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Credit:

Particulars Amounts (Rs)
Premium deposits 6,72,000
First year premium 29,82,500
Commission on re-insurance ceded 59,300
Renewal premium 23,11,900
Deposits held on re-insurance ceded 3,39,100
Balance of account at the beginning of t he year 19,52,000
Single premium 11,00,000
Sundry creditors 1,72,780
Borrowings from financial institutions 4,95,000
Re-insurance ceded – claims by maturity 2,12,400
Share capital 20,00,000
General reserves 5,00,000
Profit on realization of assets 35,000
Surplus on revaluations of reversions 2,44,700
Total 1,30,76,680

Adjustments
1. The company had a paid up capital of rupees 20,00,000 divided
into 20,000 shares of rupees 100 each.
2. Re-insurance obligations to th e extent not provided for in
accounts Rs. 1,50,000.
3. Transfer 15% of surplus to general reserve
4. Provide Rs. 1,70,000 for taxation
5. Claims by death covered under re-insurance Rs. 86,000 and
interest accrued on investment Rs. 59,000.
6. The company hold Rs. 7,64,000 government securities (not
included in the agents balance) d e p o s i t e d b y c h i e f a g e n t a s
security.
7. Provide depreciation on furnitur e Rs. 5000 and on building Rs.
20,000.


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Solution

Revenue Account for the Year Ended 31st March 2005

Particulars Schedule Amount
(Rs) Amount
(Rs)
Premium earned-net
Premium 1 63,94,400
Income from Investment
Interest, dividend and rent
accrued 5 9 , 0 0 0
Surplus on revaluation of
reversions 2 , 4 4 , 7 0 0 3 , 0 3 , 7 0 0
Profit on realization of assets 3 5 , 0 0 0
Total (A) 67,33,100
Commission 2 80690
Operating expenses related to
insurance business 3 1,13,000
Re-insurance irrecoverable 35000
Provision for tax 1,70,000
Total (B) 398690
Benefits paid (Net) 4 41,46,800
Interim bonuses paid 2,10,000
Total (C) 43,56,800
Surplus/ (D)= (A)–(B)-(C) 19,77,610
Appropriations
Transfer to general reserve
(15%) 2,96,642
Balance being funds for future
appropriations 16,80,968
Total (D) 19,77,610





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Balance Sheet as at 31st March 2005

Particulars Schedule Amount
(Rs) Amount
(Rs)
SOURCES OF FUNDS
Shareholders fund
Share capital 5 19,89,000
Reserves and surplus 6 44,29,610
Sub-Total 64,18,610
Borrowings 7 11,67,000
Total 75,85,610
APPLICATION OF FUNDS
Investments
Shareholders 8 41,20,100
Loans 9 11,00,990
Fixed Assets 10 8,25,000
Current Asset
Cash and bank balance 11 4,33,300
Advances and other Assets 12 25,52,100
Sub-Total (A) 29,85,400
Current Liabilities 13 12,75,880
Provisions 14 1,70,000
Sub-Total (B) 14,45,880
Net Current Assets (C) = (A – B) 15,39,520
Total 75,85,610

Note : Contigent liabilities : Reinsuranc e obligation to the extent not
provided for in amounts to ` 1,50,000.

SCHEDULE 1
Premium
Particulars Amount (Rs)
First year premiums 29,82,500
Renewal premiums 23,11,900
Single premiums 11,00,000
Total premiums 63,94,400 124
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SCHEDULE 2
Commission expenses

Particulars Amount (Rs)
Commission paid for single premium 77,000
Add: commission on re-insurance accepted 62,390
Less: commission of re-insurance ceded (59,300)
Net commission 80,690

SCHEDULE 3
Operating Expenses Related to Insurance Business

Particulars Amount (Rs)
Repairs 10,000
Printing and stationary 12,000
Auditors fees 25,000
Advertisement and publicity 41,000
Depreciation on furniture 5000
Depreciation of building 20,000
Total 1,13,000

SCHEDULE 4
Benefits Paid (Net)

Particulars Amount (Rs)
Insurance claims
Claims by death 7,66,400
Claims by maturity 23,41,900
Surrenders less re-insurance 5,25,000
Amounts ceded in Re-insurance
Claims by death (86,000)
Claims by maturity (2,21,400)
Amount Accepted in re-insurance
Claims by maturity 8,11,900
Total 41,46,800



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SCHEDULE 5
Share Capital

Particulars Amount (Rs)
Issued, subscribed, and called up 20,000 shares
of Rs. 100 each 20,00,000
Less: preliminary expenses 11,000
Total 19,89,000

SCHEDULE 6
Reserves and Surplus

Particulars Amount (Rs)
Balance of account at the beginning of
the year 1 9 , 5 2 , 0 0 0
General reserve 5,00,000
Add: Transfer from surplus 2,96,642
7 , 9 6 , 6 4 2
Balance fund 16,80,968
Total 44,29,610


SCHEDULE 7
Borrowings

Particulars Amount (Rs)
Borrowings from financial institutions 4,95,000
Premium deposits 6,72,000
Total 11,67,000

SCHEDULE 8
Investments Shareholders

Particulars Amount (Rs)
Government Securities 7,64,000
Government bonds 22,75,100
Investment in infrastructure bonds 10,81,000
Total 41,20,100


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SCHEDULE 9
Loans

Particulars Amount (Rs)
Loans on government securities 11,00,990
Total 11,00,990

SCHEDULE 10
Fixed Assets

Particulars Amount (Rs)
Building 6,50,000
Less: depreciation (20,000) 6,30,000
Furniture 2,00,000
Less: depreciation (5000) 1,95,000
Total 8,25,000

SCHEDULE 11
Cash and Bank Balance

Particulars Amount (Rs)
Bank balance 4,33,300
Total 4,33,300

SCHEDULE 12
Advances and Assets

Particulars Amount (Rs)
Deposits with ceding companies 11,00,000
Other Assets
Outstanding premium 3,32,100
Income accrued on investment 59,000
Claims covered under re-insurance 86,000
Due from other insu rance company 3,30,000
Sundry debtors 4,35,000
Agents balance 2,10,000
Total 25,52,100


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SCHEDULE 13
Current Liabilities

Particulars Amount (Rs)
Security hold against investment 7,64,000
Deposited by chief agent
Deposits hold on re-insurance ceded 3,39,100
Sundry creditors 1,72,780
Total 12,75,880

SCHEDULE 14
Provisions

Particulars Amount (Rs)
Provision for tax 1,70,000
Total 1,70,000

TO ASCE RTAIN PROFIT OR LOSS
OF THE LIFE INSURANCE BUSINESS

T h e p r o f i t o r l o s s o f t h e l i f e i n s u r a n c e b u s i n e s s i s t o b e
ascertained after every two year s by preparing ‘Valuation Balance
sheet’:

I n c a s e o f l i f e i n s u r a n c e b u s i n e s s , t h e c l a i m s a r i s e e i t h e r o n
death or expiry of policy period. Hence, a deficiency may arise due
to the difference between the present value of the future premium
to be received and the present value of future liability on all policies
in force. This deficiency is termed as ‘net liability’. The estimation of
such liability is done of mathem aticians well versed in tedious
calculations of life insurance – known as ‘actuaries’. After the
valuation of net liability by appoi nted actuary, it is compared with
Life Assurance fund by prepar ing Valuation Balance sheet and
thereby find out profit or loss of a Life Insurance Company.

Valuation Balance Sheet of ______ as at ______

Particulars Rs. Particulars Rs.
Net Liabilities xxx Life Insurance Fund xxx
Surplus (if any) xxx Deficit (if any) xxx
xxx xxx

2.7 PROCEDURE 128
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Illustration 4

Gipsy Life insurance company provides following information
to prepare Valuation Balance S heet and profit distribution
statement for t he year ended on 31st M a r c h 2 0 0 5 a n d a l s o g i v e
journal entries.

Amount is Rs .
Life insurance fund (as on 1-4-2004) 1,83,865
Interim Bonus Paid 27,500
Revenue account balance (as on 31-3-05) 2,64,000
Net Liability as per Valuation (as on 31-3-05) 1,81,500

The company declared a reverslonary bonus of Rs. 210 per
Rs. 1,000 and gave the policy holder s an options to take bonus in
cash Rs. 120 per Rs. 1,000. Tota l business of t he company was
Rs. 7,48,000. The company issued wit h profit policy only, ¾ of the
policy holders in value opted for cash bonus.

Solution

Gipsy Life Insurance Company
Valuation Balance sheet as at 31-3-05

Particulars Rs. Particulars Rs.
Net Liabilities 1,81,500 Life Insurance Fund 2,64,000
Surplus 82,500
2,64,000 2,64,000

Profit Distribution Statement

Particulars Amount (Rs)
Surplus as per Valuation Balance sheet 82,500
Add: Interim Bonus Paid 27,500
Profits available for distribution 1,10,000
Share of policy holders (95%) 1,04,500
Less: Interim Bonus Paid 27,500
Amount due to policy holders 77,000

Shares of shares holders (5%) 5,500

Note: 95% of the surplus must be utiliz ed for the benefit of policy
holders and 5% of the surplus to be given to shareholders. 129
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Journal Entries:

Particulars Dr
RS. Cr
Rs.
Life Insurance fund A/C
To Profit & loss A/C
To
[Being profit revealed by Valuation
Balance sheet transferred to profit & loss
A/C] Dr 82,500
82,500
Profit and loss A/C
To
To Bonus in cash A/C
[Being bonus payable @ Rs. 120 per
1,000 on ¾ of Rs. 7,48,000] Dr 67,320
67,320
Profit and loss A/C
To
To life insurance fund A/C
[Being the amount @ Rs. 210 per Rs.
1,000 on ¼ of Rs. 7,48,000 transferred to
life insurance fund in respect of
reversionary bonus. Dr

Illustrations 5

Jai Hind Life Insurance Com pany Ltd. provides information
to prepare Valuation Balance s heet and a statement showing
amount due to policy holders as on 31st March 2008

Life assurance fund as on 31st March 2008 amounted to Rs.
1,55,104, before provid ing dividend for the year 2007-08. It’s
actuarial valuation as on 31st March 2008 discloses net liability of
Rs. 1,49,480 under the assurance and annuity contracts. Interim
bonus paid Rs. 1,480 for the period ending 31st March 2008.

Solution
Valuation Balance Sheet as on 31-3-08

Particulars Rs. Particulars Rs.
Net Liabilities 1,49,480 Life Insurance Fund 1,55,104
Surplus 5,624
1,55,104 1,55,104

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Profit Distribution Statement

Particulars Amount (Rs)
Surplus as per Valuation Balance sheet 5,624
Add: Interim Bonus Paid to policy holders 1,480
7 , 1 0 4
Less: Dividend to shareholders (for 2007-08) 1,184
Profit for 2 year s ending on 31-3-08 5,920
Policy holder entitled fo r 95% of Rs. 5,624 5,624
Less: Already paid interim bonus 1,480
Amount due to policy holders 4,144


G e n e r a l I n s u r a n c e B u s i n e s s i s the business other than Life
Insurance. It is carried by General I n s u r a n c e C o r p o r a t i o n o f I n d i a
through its subsidiary companies and many private companies also
involve in General Insurance business.

S e c t i o n 2 ( 6 0 ) o f t h e I n surance Act 1938 has defined
‘General Insurance Business’ as f i r e , m a r i n e o r m i s c e l l a n e o u s
insurance business, whether carri ed on singly or in combination
with one or more of them. Fire i n s u r a n c e b u s i n e s s m e a n s t h e
business of effecting, otherwise t han incidentally to some other
class of insurance business, contra cts of insurance against loss by
or incidental to fire or other occurrence customarily included among
the risks insured against the fire i n s u r a n c e p o l i c i e s . M a r i n e
Insurance Business means the busi ness of effecting contracts of
insurance upon vessels of any descr iptions, including cargoes,
freights and other interests which ma y be legally insured in or in
relation to such vessels, cargoes and freights, goods wares,
merchandise and property of whatev er description insured for any
transit by land or water, or bo th and whether or not including
warehouse risks or similar risks in addi tion or incidental to such
transit, and includes any other risks customarily included among
the risks insured against in marine insurance policies.


• RESERVED FOR UNEXPIRED RISK:

General Insurance Policies are taken for one year period
and so risk is covered for 12 months from the date of insurance.
The policies are issued throughout the year and remain in force
even after the close for the current f i n a n c i a l y e a r a n d t h e e n t i r e 2.8 GENERAL INSURANCE BUSINESS
2.9 SOME IMPORTANT TERMS 131
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