accounting for banking and non pft orgn rev 6.pptx
TRANSCRIPT
Accounting for Banking Enterprises
Banking Regulation Act, 1949: Entity accepting
deposits repayable on demand and not a
cooperative society.
Main business:
◦ Borrowing, raising, lending or advancing of money;
acting as agents for any Government or local authorities.
◦ Managing issues of shares, stocks including
underwriting.
What is a banking company?
Required: a license issued by RBI
Financial requirement: min paid up capital
of Rs 200 crore
Liquidity norms:
◦ Cash reserve ratio
◦ Statutory Liquidity Ratio
◦ Ques: Are the deposits paid to a bank safe?
Who can become / start a bank?
Balance Sheet Can Ramu Dhobi Buy Oranges, CBI a fraud orgn
Capital segregated into tier 1 and tier 2.
Tier 1 or core capital is permanent in nature
and consists of share capital and disclosed
reserves
Tier 2 consists of certain reserves and other
subordinated debt. Loss absorption capacity
is lower in tier 2 capital.
Capital of banks
Interest earned Discount and commission earned on NIs,
LCs and LGs. NPA: If interest due and charged in any
quarter is not serviced fully within 90 days from the end of the qtr.
For calculating income interest on performing assets are charged on accrual basis but interest on NPAs are charged on cash basis.
Income of banks
Illustration 1
Illustration 1
Exercise 1
Accounting for Not for profit organizations
Primary motive : to render services to their member or to promote culture, art, education and other religions, social and charitable activities.
Welfare of the society rather than welfare of the owners.
These institutions do not prepare profit and loss Account.
Not for profit Orgn
Eg: public hospitals; educational institutions
Prepare
◦ Income and expenditure account (surplus or
deficit); (similar to Profit and Loss A/c)
◦ Statement of Affairs and
◦ Receipts and payments accounts (Cash book)
Non profit organisation
Accounting for Insurance companies
Types ◦ Life insurance◦ General insurance
Legal framework given by:◦ Insurance Act, 1939;◦ IRDA Act, 1999◦ Companies Act, 1956◦ General Insurance Business Act, 1972
Insurance companies
Revenue account (policyholders account);
Profit and Loss account (shareholders
account)
Balance sheet
Receipts and payments account (cash flow
statement)
Segmental reports
Financial statements prepared
Income: premium and foreign exchange
gain; income from insurance investments
Expenses: commission; operating expenses;
bonus paid; creation of reserves for
unexpired risks.
All relating to insurance business
Revenue account
Income and expenses not relating to
insurance business
Income: income from investment
Balance sheet has the normal items as in
others along with
Shareholders fund;
Policyholders fund
Profit and loss account and balance sheet
Other financial reports
Objective: to express an opinion whether
the financial statements of a company are
reasonably accurate and provide adequate
disclosure of transactions
Adds credibility to fin statements
Content governed by CARO
Auditors report
Introductory paragraph: auditor introduces the fin statmt of a co
Scope paragraph: whether the audit was done in accordance with Ind AS or any other standards
Opinion paragraph: auditor’s opinion on the trueness and fairness of the fin’cl statements
CARO content
◦ Qualified opinion: expressed as ‘subject to’ or
‘except for’ for effects of matter relating to qualfn
◦ Disclaimer opinion: the auditor is unable to obtain
sufficient audit evidence and hence unable to
express an opinion on fin statmts
◦ Adverse opinion: effect of disagreement on fin
stamts is material and pervasive that auditor
concludes about the disclosure of misleading or
incomplete nature of fin statmts
Opinion types..
About the Company Products or services offered Industry analysis:
◦ Scope for the industry in the market◦ Macro environment for the industry in general
Management Competitors A comment on auditor’s report and director’s report Ratios over two years
◦ EPS◦ P/E◦ Debt equity ratio◦ Np ratio◦ ROE using Du Pont and Identify their areas of Strength and weakness ◦ Stock chart over one year (from April 2014 to March 2015) and analysis of
the price movement (focus on major movements and quote reasons for the same)
Assignment guidelines