MCom I Semester Corporate Accounts Banking Companies Study Material Notes ( Part 2 )
Table of Contents
MCom I Semester Corporate Accounts Banking Companies Study Material Notes ( Part 2 ): Illustration related Profi Loss Account Schedule Interest Earned Interest Expended Capital Reserves and Surplus Deposits Borrowings Investments Advances Balances Withe Banks and Money at Call and Short Notice Fixed Assets Other Assets Contingent Liabilities Balance Sheet Deposits Cash and Balances with RBI Long Answer Question Short Answer Question Numerical :
CTET Paper Level 2 Set IX Model Paper in English
Classification of Investments
For calculating depreciation on investments, the investments of a bank are to be classified into two categories :
(1) Approved Securities: These are predominantly Government securities.
(2) Others: These include shares, debentures and bonds.
Since September 30, 2000, the banks are required to classify their entire investment portfolio into three categories: held-to-maturity, held for trading and available for sale.
1 Held-to-Maturity: Securities acquired by banks with the intention to held them upto maturity are classified as “held-to-maturity. Investments under this category should not exceed 25 per cent of the total investments of the bank.
These investments need not be marked to market. They should be carried at acquisition cost unless it is more than the face value. If the cost exceeds the face value, the premium is to be amortised over the period remaining for maturity of the security. Any diminution in the value of investments in subsidiaries/joint ventures included under this category should be provided for, if such diminution is other than temporary in nature. Such diminution should be determined and provided for each investment individually.
2. Held-for-Trading : Securities acquired by banks with the intention to trade by taking advantage of short-term price/interest rate movements should be classified as ‘held-for-trading’.
The individual scrips in this category should be revalued at monthly or at more frequent intervals and net appreciation/depreciation of scrips under each of the categories in which investments are presented in the balance sheet should be required in the profit and loss account. The book value of individual scrips should be changed to reflect the market-to-market valuations.
3. Available-for-Sale : Securities which do not fall within the above two categories should be classified as ‘available-for-sale’
The individual scrips in the available-for-sale category should be marked to market at the year-end or at some frequent intervals. While the net depreciation under each of the categories should be recognized and fully provided for, the net appreciation under any of the aforesaid categories should be ignored. Thus, banks can offset gains in respect of some investments market-to-market within a category against losses in respect of other investments market-to-market in that category. The guidelines, thus, do not permit offsetting of gains and losses across different categories.
Illustrations related to Profit & Loss Account
Illustration 8. From the following information, prepare Profit and Loss Account of Alfa-Bank Ltd. for the year ended 31st March 2006: (,000 Rs.)
(,000 Rs.)
Interest on Loans 1,60,000 Interest on Saving Deposits 40,000
Interest on Fixed Deposits 2,50,000 Directors’ Fees 1.700
Net Rebate on Bills Discounted 89,000 Postage and Telegrams 1,200
Commission 4,000 Auditors’ Fees 6,500
Exchange 1,200 Sundry Charges 4,800
Net Discount on Bills Discounted 1,46,000 Printing and Stationery 3,000
Interest on Overdrafts 2,04,000 Salaries and Allowances 50,000
Interest on Current Accounts 70,000 Lockers’ Rent 2,000
Rent, Taxes and Insurance 15,000 Loss from sale of Non-banking Assets 5,000
Interest on Cash Credit 2,73,000 Income from Investments 1,000
