BCom 3rd Year Money Financial Balance Sheet Bank Study Material notes

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BCom 3rd Year Money Financial Balance Sheet Bank Study Material notes 

BCom 3rd Year Money Financial Balance Sheet Bank Study Material notes: Form of Balance Sheet Characteristics New Form Balance Sheet Detailed Description Asset side items Balance Sheet Notes Schedule  Cash and Balance Fixed Assets other Assets  Advances Other Income  Interest Earned Exercise Questions Long Answer Questions Short Answer Questions Statement True False Choose Correct Options ( This Post is Most Important For 3rd Year Students )

Sheet Bank Study Material
Sheet Bank Study Material

BCom 3rd Year Nature Importance Financial Money Study Material notes

Balance Sheet o f a Bank

Banking Companies are governed by the Banking Regulation Act, 1949. As per section 29 of Banking Regulation Act, 1949; every banking company is mandatory required to prepare Profit & Loss Account and Balance Sheet at the end of each year. Form of Profit & Loss Account and Balance Sheet is given in schedule III of Banking Regulation Act, 1949. Before 1992 Profit & Loss Account and Balance Sheet of a bank was published in old format. To remove the defects of old format a committee was formed by the Central Government under the chairmanship of A. K. Ghosh on the basis of the rights of Banking Regulation Act, 1949. On the recommendation of the above said committee a circular was issued by Reserve Bank of India for all the commercial banks except the Regional Rural Banks to prepare Profit & Loss Account and Balance Sheet by banks in new format is made mandatory from 31st March, 1992. New forms are vertical in which, all data is to be presented with the help of schedules. 12 schedules are related to Balance Sheet while 4 schedules are related to Profit & Loss Account and 2 schedules for accounting policies. Thus, total 18 schedules are to be used.

Form A of Schedule III of the Banking Regulation Act, 1949

(Amended in 1991)

Revised Formats

THE THIRD SCHEDULE

(See Section 29)

Form ‘A’

FORM OF BALANCE SHEET

BALANCE SHEET OF………(here enter name of the Banking Company)

Balance Sheet as on 31st March………(Year) (О’00s omitted)

Capital & Liabilities

Schedule No As On 31.3….

(Current  Year )

 As on 31.3… ( Previous year )

Capital

Reserves & Surplus

Deposits

1

2

3

Borrowings Other Liabilities & Provisions

4

5

Assents

Schedule As On 31.3….

(Current  Year )

As on 31.3… ( Previous year )

Cash and Balances with

Reserve Bank of India

6

Balances with Banks and

Money at Call an Shortish

7

Investments

8

Advances

9

Fixed Assets

10

Other Assets

11

Total

Contingent Liabilities

Bills for Collection

12

 

FEATURES (CHARACTERISTICS) OF NEW FORM OF BALANCE SHEET OF BANK

The main characteristics of new form of Balance Sheet of bank are as follows:

1 In new format of Balance Sheet only the main headings are written.

2. The details of the main headings are shown separately in schedules.

3. In new format amount is shown in thousand rupees’, while in old format it was shown upto in ‘paise’.

4. In revised format new headings are given in place of old headings.

5. In new format of Balance Sheet amount of current year can be com pared with the amount of previous year at a glance.

DETAILED DESCRIPTION OF LIABILITIES SIDE ITEMS

Detailed descriptions of the items of liabilities side are as follows:

1 Capital : In Balance Sheet capital is written on the basis of the description of schedule-1. For this, banks are classified in three categories- Nationalised banks, banks incorporated outside India and other banks.

(a) For nationalised banks it is necessary to explain that total capital is held by the central Government.

(b) In case of a bank incorporated outside India, following two amounts are to written in relation to capital :

(i) Capital defined by RBI which has been brought by the bank.

(ii) Amount deposited with RBI as per Sec. 11 (2) of Banking Regulation Act, 1949.

Aggregate of (i) and (ii) is to be shown.

(c) Capital of other banks is to be shown as Authorised capital, Issued capi tal. Subscribed capital, called up and paid up capital separately. Calls in arrears are to be deducted and amount of forfeited shares is to be added to the amount of called up capital.

2. Reserves and Surplus: The detail of Reserve and Surplus is given in schedule-2 of Balance Sheet. It is classified into five subheadings:

(a) Statutory Reserve : Statutory Reserve is that reserve which is mandatory as per law. According to section 17 of banking regulation Act, 1949 every bank has to transfer 20 per cent portion of the net profit of current year in this reserve until and unless it reaches equal to the amount of paid up capital.

(b) Capital Reserve: Capital Reserve is generally created on the profit of revaluation of assets. No dividend can be distributed out of capital reserve.

(c) Security Premium : When the shares are issued by the bank in primary market, the amount of security premium is written in a separate subheading, which is a part of reserve and surplus.

(d) Revenue and other Reserves : In addition to statutory reserves and capital reserve, many reserves are created by the banks for example- General Reserve, Dividend Equalisation Reserve, Fluctuation Reserve etc. These are written under this sub-heading.

(e) Balance in Profit & Loss Account: After transferring the above reserves out of net profit remaining amount is written under this sub-heading.

3. Deposits : Deposits are written according to schedule-3. Deposits repayable on demand, deposits in saving bank account, term deposits etc. are to be shown separately under the headings of (a) Demand deposits (b) Saving Bank Deposits and (c) Term deposits. Demand deposits and Term deposits are subdivided as ‘from bank’ and ‘from others’.

Aggregate arrived at above is to be further sub-divided into two parts: (i) Deposits of branches in India and (ii) deposits of branches outside India.

4. Borrowings: Amount borrowed by bank is to be shown under schedule 4. There are two sub-headings written in this heading. Under first subheading loans taken from Reserve Bank of India, from other banks and from other institutions and agencies are written; while in second sub-heading amount borrowed from outside India is written.

5. Other Liabilities and Provisions : This is the last item of the liabilities side of Balance Sheet. It is shown under schedule-5. Under this heading bills payable, Inter-branch adjustment, Accured interest and others (including provisions) are written.

DETAILED DESCRIPTION OF ASSET SIDE ITEMS

Following items are written in the asset side of balance sheet:

1.Cash and Balances with Reserve Bank of India : It is the first item of the asset side of the Balance sheet. It is shown in schedule-6. Under this heading there are two sub-headings: (i) Cash in hand (including foreign cur rency note) and (ii) Balances with Reserve Bank of India in Current accounts and other accounts.

2. Balance with Banks and Money at Call and Short Notice: This item is shown under schedule-7. Following items are to be included in this schedule :

(i) Amount deposited in current accounts and other accounts in India.

(ii) Money at call and short notice with banks or other institutions.

(iii) Amounts deposited and money at call and short notice with current accounts and other accounts outside India.

3. Investment: Investment is shown in schedule-8. It is an important asset for a bank. It may be inside India and outside India. So, it is shown in two separate sub-headings. It includes investment in government or non-government securities like shares, debenture, bonds and others.

4. Advances: Detail of this heading is shown in schedule-9. Advances can be given in many ways for example-purchase or discounting of bills, cash credit, overdraft, loans repayable on demand term loans etc.

It is also necessary to explain how many amounts are secured by assets, how many amounts are secured by banks or government securities and how many amounts are unsecured. Further advances are also to be classified as provided in India and outside India.

5. Fixed Assets : Detail of fixed asset is shown in schedule-10. Under this heading there are two sub-headings-first for premises and second for other assets. Additions, deductions and depreciation to date are also to be shown along with fixed assets.

6. Other Assets : Assets which do not take place under above schedule are to be included under this head as per schedule-11. Following items are written under this heading :

(i) Inter office/branch adjustments (net),

(ii) Accured interest,

(iii) Tax paid in advance/tax deducted at source,

(iv) Stationery and stamp in stock,

(v) None banking assets in satisfaction of claims and

(vi) Others (loss, if any, which are not written off, are to be shown under others).

ITEMS TO BE SHOWN AS NOTES AT THE END OF THE BALANCE SHEET

Following two items are shown as notes at the end of the Balance Sheet:

1 Contingent Liabilities: It means the liability which arises on happening of a specific event. This is purely estimated or contingent whose happening is not definite. But in near future it may be a liability. So it is shown at the end of the balance sheet, as per schedule-12.

Following items are to be included under this heading.

(i) Claims against the bank not acknowledge at debts.

(ii) Liability for partly paid investments.

(iii) Liability on account of outstanding forward exchange contracts.

(iv) Guarantees given on behalf of constituents.

(v) Acceptance, endorsement and other obligations.

(vi) Other items for which and bank is contingently liable.

2 Bills for collection : These bills are only to be written for information at the end of the Balance Sheet. It is not to be included in assets or liabilities. No separate schedule is there for this item.

ADVANTAGES OF BALANCE SHEET OF BANK

Main advantages of Balance Sheet of bank are as follows:

1 Knowledge about Financial Position : Balance Sheet of a bank is a mirror of economic position. It reflects the knowledge of financial position and working capital.

2. Knowledge about Progress: Progress of bank can be known with the comparison of the Balance Sheet of previous year.

3. Comparison with other Banks : This is the age of competition. The Balance Sheet of banks is published. So any bank can compare the Balance Sheet with that of other bank.

4. Public Confidence: The public confidence increases after the publication of Balance Sheet. They feel their deposits to be in a safe position.

5. Knowledge about Safety and Liquidity: Security of debts can be seen in Balance Sheet. Similarly out of total assets how much assets are in liquid position can be known.

EXERCISE QUESTIONS

Long Answer Type Questions

1 Explain the items of both sides of a Bank’s Balance Sheet.

2. Give a proforma of Balance Sheet of a banking company.

Short Answer Type Questions

1 What is Statutory Reserve ?

2. What is Contingent Liability ?

3. Write a note on Money at Call and Short notice.

III. Objective Type Questions

Choose the correct option

1 What percentage of its net profit has to be transferred in Statutory Reserve to a

bank?

(a) 5%

(b) 10%

(C) 15%

(d) 20%

2. Credit balance of profit and loss account in written in …..

(a) Reserve and Surplus

(b) Other liabilities

(c) Other assets

(d) None of the above

3. In balance sheet advance is written in ……..

(a) Liability side

(b) Asset side

(c) At the end of Balance Sheet as note

(d) None of the above

4. Bills for collection in written in.

(a) Liability side

(b) Asset side

(c) At the end of Balance Sheet as note

(d) None of the above

5. Contingent liability is written in …………

(a) Schedule-4

(b) Schedule-5

(c) Schedule-11

(d) Schedule-12

 [Ans. 1(d), 2 (a), 3 (b), 4 (c), 5 (d)]

State whether the following statements are True or False :

1 Deposits are shown in the asset side of the Balance Sheet of a bank.

2. Interest on deposits is the expenses of a bank.

3. The accounting year of a banking company begins on 1st April.

4. Loans are shown in the asset side of the Balance Sheet of a bank.

5. 20 percent of profit of banks is transferred to statutory reserve fund every year. 6. Interest, discount and commission are the incomes of a bank.

[Ans.: 1. False, 2. False, 3. True, 4. True, 5. True, 6. True.)

 

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