accounting for banking and non pft orgn rev 6.pptx

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