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STUDY MATERIAL
SECOND SEMESTER
CORE COURSE : BC2B02
For
BCOM
(2017 ADMISSION ONWARDS)
UNIVERSITY OF CALICUT
SCHOOL OF DISTANCE EDUCATION
Calicut University P.O, Malappuram, Kerala, India 673635
307A
School of Distance Education
UNIVERSITY OF CALICUT
SCHOOL OF DISTANCE EDUCATION
STUDY MATERIAL
SECOND SEMESTER
BCOM
(2017 ADMISSION ONWARDS)
CORE COURSE:
BC2B02 : FINANCIAL ACCOUNTING
Prepared by:
Sri. Rajan.P
Assistant Professor on Contract
School of Distance Education, University of Calicut
CON T EN T S
M ODU LE I
PREPARATION OF FINANCIAL STATEMENTS OF NON CORPORATE ENTITIES NOT
COVERED BY IFRS CONVERGENCE
Financial statements are the accounts or statements prepared at the final stage to
judge the financial position of the business. Before discussing the preparation of final
accounts, let us understand the main items to be taken in them.
Trading account
Trading means buying and selling of goods. Trading account is prepared to show
the result of trading during an accounting period. The result of trading may be gross profit or
gross loss. If the sale proceeds exceed the cost of goods sold, the difference is gross profit or
gross margin.
An income statement prepared to ascertain the trading result of business is known as trading account
Gross profit (or gross loss)= net sales- Cost of goods sold.
Cost of goods sold = Opening stock +net purchases +Direct expenses – Closing stock
xxxxx xxxxx
Profit and loss account is prepared to ascertain the net profit or net loss of the
business for an accounting period. The amount of gross profit is shown on the credit side.
Indirect expenses, operating expenses and losses are shown on the debit side of this
account and all incomes and gains are shown on the credit side .If credit side is more than
debit side, the difference is net profit.
xxxx Xxxx
MANUFACTURING ACCOUNT
Manufacturing account is an account prepared by manufacturing concerns to
ascertain cost of goods manufactured during a period. All the expenses relating to
manufacturing activity are debited. The total represents cost of manufactures, which is
transferred to trading account. A specimen of manufacturing account is given below:
‐‐‐‐‐ Xxxx
To freight Xxx
xxxx Xxxxx
BALANCESHEET
Balance sheet is a statement showing the assets and liabilities of a business on a
particular date. It reveals the financial position of a business. Hence it is also
known as position statement. In the words of Francis R Stead, ‚balance sheet is a
screen picture of financial position of a going business at a certain moment.
Liabilities Assets
Current
liabilities: Current Assets:
‐‐‐‐‐‐‐‐‐‐ Furniture
Plant Xxx
Land and building
goodwill Xxxx
Xxxx
xxxxx x
When a sum of money from one account to another account has to transferred it is
done by a means of an entry called transfer entry.
CLOSING STOCK
If it is given in the adjustment it is shown on the credit side of the trading account and also
shown on the assets side of the balance sheet. If it is given in the trial balance, It should be
shown only in the balance sheet.
OUTSTANDING EXPENSES:
These are those expenses which remains unpaid at the end of the accounting period. If it is
given in the adjustment, it should be added to the concerned expenses on the debit side of the
trading account or profit or loss account and it should also be shown in the balance sheet as
liability. If it is given in the trial balance, it should be shown in the balance sheet as
liabilities.
PREPAID EXPENSES
Prepaid expenses are payments made in the current year but related to the next
accounting year. Prepaid expenses are also known as expenses paid in advance or unexpired
expenses. If it is given in the adjustment, it should deducted from the concerned expenses on
the debit side of trading accounting or profit and loss account and it should also be shown on
the asset side of balance sheet. If it is given in the trial balance, it should be taken only in the
balance sheet as asset
If it is given in the adjustment, it should be shown on the debit side of the profit and
loss account and deducted from concerned asset on the balance sheet. If it is given in trial
balance, depreciation should be taken only on the debit side of profit and loss account.
In case goods are not insured the total loss should be shown on the credit side
of the trading account. The same amount should be shown on the debit side of the profit and
loss account. If goods are insured and insurance company admitted the claim, the total loss
should be credited to the trading account, amount claim not admitted by the insurance
company is debited to P&L account and claim admitted is shown on the asset side of balance
sheet.
MANAGERS COMMISSION
Illustration 1:
Mr. A, who is a sole trader .following is the trial balance as on 31‐dec 2011
Cash at bank 61,590 sales 9,36,200
Cash in hand 11,800 12% bank loan 80,000
Drawings 20,000 capital 1,60,000
Bill receivable 39,600 bills payable 5200
Salary 44,000 discount received 2400
Sundry creditors 1,26, 200
Investment Income from investment 1980
(Market value Rs 28000) 24,000 Purchase return 7,400
Stock on 1‐1‐2011 1,27,360
Land and building 80,000
Travelling expenses 13,800
Motor van 32.000
Furniture 16,000
Telegram 1,600
Sundry debtors 1,28,000
Discount allowed 3,600
Sundry expense 37,240
Stationary 3,200
Bank loan interest 6,000
Establishment 9,190
Advertisement 2,000
Sales return 5,000
Purchase 6,53,400
‐‐‐‐‐‐‐‐
‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐
13,19,
13,19,380 380
Additional information
1. Closing stock is valued at 2,40,000
2. Maintain a reserve of 10% of debtors as reserve for debtors
3. Provide a reserve of 5% on sundry debtors as reserve for discount and 5%
on sundry creditors
4. Stock worth Rs 20,000 destroyed by fire on 25‐11‐2011 in respect of which
the insurance company admitted the claim only Rs 15,000
5. The manager of the business is entitled to get a commission of 10% of
net profit after calculating such commission
6. Charge depreciation 2.5% on land and building, 10% on furniture, 20% on
motor van
7. Salary paid in advance 3000.
Prepare a trading and profit and loss account on 31 Dec 2011.and balance sheet on
that date.
Trading and profit and loss account for the year ended 31 Dec 2011
1191200 1191200
Working note:
Liabilities Assets
Sundry creditors 1, 26,200 Cash in hand 11,800
Less provision 63,10 Cash at bank 61,590
‐‐‐‐‐‐‐‐‐‐‐‐‐ 1,19,890 Bills receivable 39,600
Bills payable 5,200 Sundry debtors 1,28,000
Interest on bank loan 3,600 Less provision 12,800
Commission payable 24,885 ‐‐‐‐‐‐‐‐‐‐‐‐
Bank loan 80,000 1,15,200
Capital 1,60,000 Less provision
Add net profit 2,48,855 For discount 5, 760
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐ 1,09,440
4,08,855 Closing stock 2,40,000
Less drawings 20,000 Salary prepaid 3,000
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 3,88,855 Insurance claim 15,000
Investment 24,000
Furniture 16,000
Less depreciation 1,600
‐‐‐‐‐‐‐‐‐‐‐‐‐ 14,400
Motor Van 32, 000
Less depreciation 6,400
‐‐‐‐‐‐‐‐‐‐‐‐ 25,600
Land and building 80,000
Less depreciation 2,000
‐‐‐‐‐‐‐‐‐ 78,000
Illustration 2
The following balances are extracted from the books of accounts of Raman on 31‐dec 2011
Purchases 40000 sales 70185
Purchases return 1410 stock (1‐1‐11) 5730
Capital 50500 drawing 8800
Bad debts 700 bad debt reserve (1‐1‐11) 1620
Carriage inwards 1155 office expenses 670
Postage and stationary 330 bills receivable 620
Discount (Cr) 115 wages 3140
Sales return 2120 rent received 1050
Building 13000 cash in hand 1105
Cash at bank 6200 salary 4500
Office furniture 1800 postage 410
Commission paid 435 sundry creditors 9490
Prepare trading and profit and loss account for the year ended 31‐dec 2011 and
prepare balance sheet on that date considering the following:
1) Insurance unexpired Rs 120
2) Provide interest on capital @ 5%
3) Rent not received Rs 100
4) Depreciate on old building @2.5%,new @ 2% and office furniture @ 5%
5) Write off further bad debts Rs 285
6) Increase the provision for bad debts @6% on debtors
7) Salary outstanding Rs 285
8) Stock on 31‐12‐2009 valued @ Rs 7145
Trading and profit and loss account for the ending 31 st December
Particulars Amount Particulars Amount
Opening stock 5730 Sales 70185
Purchases 40000 Less return 2120 68065
Les return 1410 38590 Closing stock 7145
To wages 3140
To carriage inwards 1155
To gross profit 26595 75210
75210
16500
Less total depreciation
395
-------
Illustration 3
st
The following trial balance is extracted from the book of a merchant on 31 December 2017
Furniture 640
Motor vehicle 6250
Building 7500
Capital account 12500
Bad debts 125
Provision for bad debts 200
Debtors and creditors 3800 2500
Stock on I st jan 2017 3460
Purchases and sales 5475 15450
Bank overdraft 2850
Sales and purchases return 200 125
Advertising 450
Interest (on overdraft) 118
Commission 375
Cash 650
Taxes and insurance 1250
General expenses 782
Salaries 3300
------- -----------
34000 34000
9940 9940
Purchases 40000
Purchases return 1410
Capital 50500
Bad debts 700
Carriage inwards 1155
Postage 330
Discount cr 115
Sales return 2120
Building 13000
Cash at bank 6200
Sales 70185
Stock (1.1.17) 5730
Drawings 8800
Bad debt reserve (1.1.17) 1620
Office expenses 670
Rates and insurance 650
Bills receivable 620
Wages 3140
Rent received 1050
Salaries 4500
Add outstanding 285
Rates and insurance 650
Less prepaid 120 4785
Office expenses 530
Printing and stationary 670
Postage 330
Sundry expenses
410
Depreciation
8470
Building (old) 325
Building new 70
Office furniture 90
75210 75210
Illustration 1
st
A keeps his books by single entry system. His position on 1 Jan 2011 was as follows
Depreciate machinery and plant by 5% and create a reserve for bad and doubtful
debts at 5%.from the above information prepare a statement showing the profit and
st
loss made by him for the year ended 31 Dec 2011
30500 30500
st 25275
Capital as on 31 Dec 2011
Add: drawings (800 x12) 9600
34875
Less: further capital introduced 2000
32875
Less capital as on 1 1 2011 24000
Profit made during 2011 887
Illustration 2
Sri C Sharma commenced business on 1-jan-2003 with a capital of Rs 25000: Rs 20000 brought in
st
cash and the balance in the form of machinery. On 1 October 2003 he introduced Rs 10000 in the
business for which Rs 6000 were borrowed from his wife during the year. He withdraw at the rate of
st
Rs 500 a month his position on 31 Dec 2003 was as follows
ASSETS
Stock of goods Rs 12500: sundry debtors Rs 10500: machinery Rs 6000: cash at bank Rs
3000: cash in hand Rs 500: bills receivable: Rs 3800 and furniture Rs 10000
LIABILITIES
Sundry creditors Rs 8500: loan from wife Rs 6000: bills payable Rs 1500
Ascertain his profit for the year ended 31 Dec 2003
liabilities Rs asset Rs
46300 46300
36300
4000
Less additional capital introduced Less
32300
capital at the beginning(1 1 2003)
25000
Profit earned during the year(2003)
7000
Illustration 3
Sri Shankar keeps his books on single entry and following info is disclosed from his records
31 12 2002(Rs) 31 12 2003(Rs)
Balance at bank (Cr)2500 5500
Sundry debtors 14000 21000
Furniture 29000 27500
Stock in trade 15000 20000
Investments 6000 6000
Cash in hand 200 500
Sundry creditors 25000 29000
Bills payable 1000 600
Loan from tea pankaj …………. 4000
Sri V Shankar transferred Rs 300 per month from the business to his private bank
account by way of drawings. In addition, he withdraws Rs 6000 for his daughterƒs marriage and
Rs 500 for
charitable purpose. He also withdraws goods worth Rs 2500 for domestic purpose.
In august 2003 he had received a lottery price of Rs 6000 of which he invested Rs 3000
in to the business. He sold some private property for Rs 8000 and processed were utilized for
the business
He wants his furniture to be depreciated at 10% per annum and a reserve for doubtful
debts be created at 6%.he had not paid 2 monthsƒ salary to his accountant at the rate of 400 per
month and 2 monthsƒ rent of the shop was unpaid amounting to Rs 500.interest earned but not
received by him was
Rs 2100 prepare a statement of profit and loss for the year ending 31-12-2003.
To calculate the opening capital, the statement of affairs as at 31-dec-2002 is prepared thus:
Statement of affairs as at 31-12-2002
Liabilities Rs Assets Rs
Bank overdraft 2500 Sundry debtors 14000
Sundry creditors 25000 Furniture 29000
Bills payable 1000 Stock in trade 15000
Capital ( bal.fig ) 35700 Investment 6000
Cash in hand 200
64200 64200
Similarly, a statement of affairs at Dec 31, 2003 will show the closing capital, thus:
Rs Rs
Capital at the end (31 12 2003)
46900
Add drawing during the period
12600
59500
11000
Less additional capital introduced
48500
Less capital at the beginning(31 12
35700
2002) Profit subject to adjustments
Less depreciation on furniture of 12800
2750
10% Reserve for Doubtful debts
1260
at 6% Out standing salary
800
Out standing rent 507
5310
CONVERSION METHOD
Conversion of single entry in to double entry involves the
complete process of journalizing, posting, balancing and preparation of trial balance.
Then final accounts are to be prepared .if any information is missing, it should be
ascertained by preparing the relevant accounts before preparation of final accounts
Specimen
TOTAL DEBTORS ACCOUNT
Rs Rs
Opening balance of creditors Xxx Cash received from debtors Xxx
Credit sales Xxx Bills receivable received Xxx
Bills receivable dishonored Xxx Discount allowed Xxx
Allowances claimed Xxx
Return inwards Xxx
Bad debts Xxx
Transfer to/from creditors Xxx
Closing balance of debtors Xxx
xxx Xxx
Rs Rs
Cash paid to creditors Xxx Opening balances of creditors Xxx
Bills payable accepted Xxx Credit purchases Xxx
Discount received Xxx Bills payable dishonored Xxx
Allowances received Xxx
Return outwards Xxx
Transfer to/ from debtors Xxx
Closing balance of creditors Xxx Xxxx
xxxx
Rs Rs
Opening balance Xxx Cash Xxx
Sundry debtors Xxx (realization of bill)
(B/R received) Sundry debtors xxx
(bill returned dishonored)
xxxx Closing balance Xxx
Xxxx
Illustration 4
Ascertain credit sales and purchases from the following figures
Debtors Rs creditors Rs
Solution
Total debtors account
R
Rs s
Balance b/d 10800 Cash 36850
Bills receivable (dishonored) 600 Discount allowed 2000
Credit sales(balancing figure) 45800 Bad debts 450
Returns 800
Bills receivable 8400
Balance c/d 8700
57200 57200
From the following particulars extracted from the books of a trader kept under the
single entry system you are asked to find out the figure for credit sales and credit
purchases by preparing the total debtors account and total creditors account show also
the bill receivable account and bills payable account.
Solution
Bills receivable account
Rs Rs
Balance b/d 1400 Cash 4660
Sundry debtors 4110 Sundry debtors 500
(balancing figure) (bills dishonored) 350
5510 Balance c/d 5510
Rs Rs
Illustration 6
Rs Rs
163000 163000
Total sales=132000+50000=182000
Illustration 7
Solution
Total creditors account
Rs Rs
Cash 10000 Balance b/d 14000
B/P 10000 Purchases(credit balances) 34500
Discount 500
Returns 3000
Balance b/d 25000
48500 48500
Total purchases=
34500+10000=44500
Illustration 8
A commenced as a business as a cloth merchant on 1-1-2011 with a capital of rs 10000.on the
same date he purchased furniture and fitting for cash 3000
From the following particulars obtained from his books kept by single entry, you are required
st
prepare trading and profit and loss account for the year ending 31 December 2011 and a
balance sheet on that date:
A took cloth worth Rs 500 from the shop for private use and paid Rs 200
st
to his son, but omitted to record these transactions in his books on 31 December 2011.his
st
sundry debtors were Rs 5200.and sundry creditors Rs 3600.stock in hand on 31 Dec 2011 was
Rs 6500.
st
A€s trading & profit and loss account for the year ending 31 Dec 2011
Rs
purchases 15000 Sales 17000
less drawings 500 14500 Closing stock 6500
Rs Rs
Sundry creditors 3600 Cash 2800
Capital 10000 Sundry debtors 5200
Less drawings 1900 Closing stock 6500
Furniture 3000
81000
Add net profit 5800
13900
17500 17500
Working notes:
Sundry debtors account
Rs Rs
Sales credit 10000 Cash (balancing figure) 4300
Bad debt 500
Balance c/d 5200
10000 10000
11000 11000
Cash account
Rs Rs
Capital 10000 Furniture 3000
Sales 7000 Purchases 4000
Debtors 4300 Drawings( 1200+200) 1400
Salaries 2000
Business expenses 700
Creditors 7400
Balance c/d(balance) 2800
21300 21300
Illustration 9
Sunil keeps his books on single entry system. From the following information provided
st
by him prepare a trading and profit and loss account for the year ended 31 December 2011
and a balance sheet on that date
48800 48800
Balance b/d 800
12000
Less outstanding
2010 1400
10600
Add outstanding
2011 2200 12800
Liabilities Rs Assets Rs
25800 11700
28000 28000
Illustration 10
From the following data, ascertain total sales.
Balances of debtors on 1 1 2011 Rs. 24000
Sales return 10000
Cash received from the customers 90000
Discount allowed to them 6000
B/R received 34000
Bad debts 3000
B/R dishonored 7000
Balance of debtors on 31 12 2011 20000
Cash sales 50000
163000 163000
The partner‚s drawings during 2011 have been provided at A Rs.1400; B Rs. 1000 and C
st
Rs.650; on 31 Dec. 2011, the cash was Rs.3200, Debtors Rs.4045 stock Rs. 5900,
Advance payment Rs. 25 and creditors Rs.6040. machinery is to be depreciated by 10% per
annum and fixtures and fitting at 7.5%, 5% interest is to be allowed on capital. The partners
share profits in the proportion of ½, 1/3 and 1/6.
You are required to prepare a statement showing the net trading profit for the year 2011
st
and the division of the same between partners, together with the balance sheet as on 31
Dec.2011
555
Machinery 1440
1296
15040 15040
Profit made during the year before allowing interest on capital Less: interest on capital (5%)
2936
A (4500 X 5/100)
B (3000 X 5/100) 255
st
Balance sheet of M/s A, B and C as at 31 Dec. 2011
liabilities Rs Assets Rs
Creditors 6040 Cash 3200
Capital : Debtors 4025
A 4500 Advance payment 25
B 3000 Stock 5900
C 1500 9000 Fixtures & fitting 600
Less: depreciation 45 555
A€s Currents A/c
as on 1 1 .11 145 Machinery 1440
Add: profit 1243 Less: depreciation 144
Add: interest 225 1296
C€s current A/c
1613 as on 1 1 11 170
Less drawing 1400 add: drawing 650
213
B€s current A/c :
820
As on 1 1 11 100 Less: interest 75
Add: profit 150
Add: interest 828 745
Less: profit 415
1078
330
Less : drawing 1000
78
15331 15331
Rs. Rs.
Opening stock 9000 Sales 48000
Purchase 12500 Closing stock 10220
Gross profit c/d 36720
58220 58220
======= ======
Interest 100 Gross profit b/d 36720
Salaries 8500
Expenses 7900
Provision for doubtful debts 1500
Interest on capital 1750
Depreciation:
Furniture 50
Office premises 750
Group commission 770
Net profit c/d 15400
36720 36720
Liabilities Rs Assets Rs
56420 56420
Working note:
(1)
CASH BOOK
2009 Rs. 2008 Rs.
To
March debtors 25000 March By Balance b/d 4000
31 Sales 15000 31 (balance)
(5)
Gross profit Rs.36720
Less: all expenses except
commission 20550
Trial balance
DEPRECIATION ACCOUNTING
M ODU LE-2
ACCOUNTING FOR SHARE CAPITAL
Characteristics of Company
1. It is a voluntary association of persons
2. It has a separate legal entity
3. It has a common seal
4. It has a perpetual succession.
Kinds of Companies
I. On the basis of formation
1. Chartered companies – Those companies which are incorporated under a
special charter by the king or sovereign such as East India Company.
2. Statutory companies – These companies are formed by the special Act of
legislature or parliament like RBI.
3. Registered companies – Such companies are incorporated under the
Companies Act 1956 or were registered under any previous Companies Act.
On the basis of liability
1. Limited companies In these companies, the liability of each member is
limited to the extent of face value of shares held by him.
2. Guarantee companies – The liability of member of such companies are limited to
the amount he has undertaken to contribute to the assets of the company in the
event of its winding up.
3. Unlimited Companies – In these companies, the liability of the members is
unlimited and members are personally liable to the creditors of the company fop
making up the deficiency. Such companies are rare these days.
On the basis of public investment
1. Private Companies – These are companies by its Articles, (i) limits the number
of members to 50,(ii)prohibits the invitation to the public to subscribe their shares
or debentures and (iii) restricts the transferability of their shares.
2. Public companies – These are companies other than private companies.
SHARE CAPITAL
Total capital of the company is divided into units of small denominations; each
one is called a share. According to Sec 2(46) of the Companies Act 1956, share has
been defined as a share in the share capital of the company; and includes stock
except where a distinction between stock and share is expressed or implied.
Classes of Shares
A. Preference Shares
Shares which enjoy the preferential rights as to dividend and repayment of
capital in the event of winding up of the company over the equity shares are called
preference shares. The holder of preference shares will get a fixed rate o dividend.
Issue of shares at di
discount
Shares are eholder is required to pay
e said to be issued at discount when the shareholder
less amount than
han the fa
face value to the company. Discount on issuessue oof shares is a capital
loss and it should debited to a separate account called “
d be deb “Discount
scount on issue of shares
” It is shown
A/c”. own o on the assets side of balance sheet et under “ “Miscellaneous
Expenditure”.” Thehe rate of discount should not exceed 10% of nomi nominal value of shares.
Generally the discount
scount o ent. It is also noted that a
on issue is recorded at the time of allotment.
newly registered company cannot issue shares at discount. The e journa
journal entry is
Share allotment
otment A
A/c Dr (allotment money
oney due
due)
Discount
ount on issue o
of shares A/c Dr (discount)
To
o Share ccapital A/c (Total)
Illustration 2
A Ltd. Issued 5000
000 sshares of Rs.10 each at a premium off Rs.5 per share. The
amount was payable
yable as Rs.3 on application, Rs.7 on allotment
tment (incl. Premium)
and the balance
ce on ffirst and final call. All shares were subscri
subscribed and money
duly received. Show th
the journal entries.
Solution:
Bank A/c Dr 1
15000
To ShShare Application A/c 15000
(Application
tion mmoney received)
Share applica
pplication A/c Dr 1
15000
To ShShare Capital A/c 15000
(Transferr of ap
application money to share capital)
Share allotme
llotment A/c Dr 3
35000
To ShShare capital A/c
To SeSecurities premium A/c 10000
(Allotmentnt mo
money due with premium) 25000
Bank A/c Dr
To o Sha
Share allotment A/c 3
35000
(Allotmentnt mo
money received) 35000
Share first
irst an
and final call A/c Dr
Too Sha
Share capital A/c 2
25000
(First andd fina
final call money due) 25000
Bank A/c Dr
Too Sha
Share first and final call A/c 2
25000
(First andd fina
final call money received) 25000
Illustration 3
Balu Ltd. Issued 20000 00 sha
shares of Rs.10 each at a discount of 10%
0% pa
payable as Rs.2 on
application, Rs.3 on allotm
allotment and Rs.4 on first and final call. 20000
0000 applications were
received and all were acce accepted. Pass journal entries.
Solution:
Bank A/c Dr 4
40000
To ShShare Application A/c 40000
(Application
tion mmoney received)
Share applica
pplication A/c Dr 4
40000
To ShShare Capital A/c 40000
(Transferr of ap
application money to share capital)
Share allotme
llotment A/c Dr 6
60000
Discountt on issu
issue of shares A/c
Dr 2
20000
To ShShare capital A/c 80000
(Allotment
ent mo
money due at 10% discount)
Bank A/c Dr 6
60000
To o Sha
Share allotment A/c 60000
(Allotmentnt mo
money received)
Share first
irst an
and final call A/c Dr 8
80000
Too Sha
Share capital A/c 80000
(First andd fina
final call money due)
Bank A/c Dr
To
o Sha
Share first and final call A/c 8
80000
(First and
d fina
final call money received)
80000
1. When application
ion money is returned:
Share application
cation A/A/c Dr
To Bank A/c
2. When excess applicati
application is adjusted towards allotment or call:
Share application
on A/c Dr (total)
To share allotment
otment A
A/c (amount adjusted
usted ttowards allotment)
To Call (if any) (amount adjusted towards
owards call)
Illustration 4
Sun Ltd.makes an issuessue of 100000 equity shares of Rs.10 each payable Rs.3 on
application, Rs.5 on allotmen
lotment and Rs.2 on first and final call. Application
cations were received for
250000 shares. The compacompany returned the applications on 24000 000 shshares and excess
application money from m rem
remaining applicants was carried forward d in ppart satisfaction on
amount due on allotment ent on the shares allotted to them. The balance
alance of allotment was
received. The companyy did nnot make the first and final call. Journalize
ize the transactions.
Solution:
Bank A/c Dr 7
750000
To ShShare Application A/c 750000
(Application
tion mmoney received for 250000
shares) 3
372000
Share applica
pplication A/c Dr
To ShShare Capital A/c 300000
To BaBank A/c 72000
(Transferr of ap
application money to share capital
and 2400000 ap
applicants rejected and refunded)
Share allotme
llotment A/c Dr 5
500000
To ShShare capital A/c 500000
(Allotment
ent m
money due )
Share applicati
application A/c 3
378000
Dr
Bank A/c Dr 1
122000
To
o Sha
Share allotment A/c 500000
(Excess applic
application money adjusted and
balance recei
received in cash)
Calls in Arrears and Calls in Advance
Sometimes shareholder
holders may fail to pay the allotment money and or call money. Such
dues are called calls in arrears. It is shown in the balance sheet as a deduct
eduction from the called
up capital. Directors are
e author
authorized to charge interest on calls in arrearss at a rate as per Articles.
In its absence, the interest
est does not exceed 5% pa. When a shareholder der pay
pays more money than
called up, the excess money
oney iis called calls in advance. The company must pay interest on calls
in advance at a rate prescribe
scribed by Articles. In its absence, the company any is lliable to pay interest
@6% pa. But the shareholderolder is not entitled to any dividend on calls in
n advanc
advance.
Forfeiture of shares
The cancellation of sh shares due to non payment of allotment nt momoney or call money
within a specified period od is called forfeiture of shares. It is the compul
compulsory termination of
membership of the defaulting
aulting shareholders. He also losses whatever er amo
amount he has paid to
the company so far. A comp company can forfeit the shares only if it is author
authorized by its Articles.
The forfeiting is done only a after giving 14 days notice to the defaulting
ulting shareholders. The
balance of forfeited shares
ares AA/c should be shown by way of an addition
dition to called up capital
on the liability side of balance
alance sheet till the shares are reissued.
Journal entries
1. Forfeiture of share
shares which were issued at par:
Share Capital
pital A/
A/c Dr (amount called ed up)
To share allotment A/c (allotment
ent unp
unpaid)
To share call A/c (call unpaid)
To forfei
forfeited shares A/c (total amount paid)
2. Forfeiture of share
shares which were issued at premium:
(a) When allotment
ment money(incl. premium) and call money not paid
Illustration 7
Jay Ltd issued 5000 shares of Rs.10 each at a discount of 10% payable as Rs.3 on
application, Re.1 on allotment, Rs.3 on first call and Rs.2 on final call. Mr. Raju was allotted
50 shares and who failed to pay first call and final call. Give journal entries if those shares
were forfeited.
Solution:
Share Capital A/c Dr 500
(50x10) 150
To first call A/c 100
(50x3) 200
To final call A/c 50
(50x2)
To forfeited shares A/c
(50x4)
To discount on issue of shares A/c
(50x1)
(forfeiture of 50 shares due to non payment of
first and final call)
DEBENTURES
The term €debenture• has been derived from the Latin word €debere•, which means €to
borrow•. Debenture is an instrument in writing given by a company acknowledging debt
received
from the public.
The Companies Act defines debenture as “debenture includes debenture stock, bonds
or any other securities of a company, whether constituting a charge on the assets of the
company or not”.
Bond
Like debentures, bond is an acknowledgement of debt issued under the seal of a
company. It is a debt instrument. The rate of interest is not predetermined. But the rate of
interest on debentures is predetermined.
In india, there is not much difference between bond and debentures. Bond is a secured
debentures. A debenture which is unsecured does not become a bond. In india, debentures are
usually issued as secured debentures. Bonds are generally issued by government and semi-
government organizations.
Charge
The term €charge• simply refers to mortgage. It means securing the loan by
encumbering assets against the loans. This implies that if the borrower(or company) fails to
meet its obligation(or fails to repay the loan) the lender can secure his payment from the
assets mortgaged.
Features of Debenture
• It is an instrument of debt issued by company under its seal.
• It carries fixed rate of interest.
• Debenture is a part of borrowed capital.
• It is repaid after a long period.
• It is generally secured.
Share Debenture
1. The person holding share is called 1. The person having debenture is
shareholder called debenture holder
2. It is part of owned capital 2. It is a part of borrowed capital
3. Dividend is paid on shares 3. Interest is paid on debenture
4. Rate of dividend varies year to year 4. Rate of interest is fixed
5. Shareholder has voting right 5. Debenture holder doesn’t have
voting right
It can’t be converted into
6. debenture 6. It can be converted into share
Classification of debentures
Issue of Debentures
Issue of debentures can be studied in the following two points of view
J. From consideration point of view
For consideration in cash: Debentures can be issued either at par, at
premium or at discount. The entry will be
Bank A/c Dr
Discount on issue of debentures A/c Dr (if issue at discount)
To Debentures A/c
To Security premium A/c (if issue at premium)
b. For consideration other than cash: The entries are
4. For purchase of assets
Sundry Assets A/c Dr
To Vendor A/c
ii. For issuing debentures for payment of purchase consideration
Vendor A/c Dr
To Debentures A/c
As collateral security: When debentures are issued as subsidiary or secondary
security in addition to the principal security against a loan or bank over draft such
an issue of debentures is called issue of debentures as collateral security.
3. From price point of view
From this point of view debentures can be issued either at par, at
premium or at discount.
a. When debentures are issued at par
Bank A/c Dr (with face value)
To debentures A/c
b. When debentures are issued at discount
Bank A/c Dr (net amount received)
To Discount on issue of Debentures A/c (amount of discount)
To Debentures A/c (with face value)
c. When debentures are issued at premium
Bank A/c Dr (total amount)
To Debentures A/c (with face value)
To Security premium A/c (amount of premium)
Illustration 14
7. X Ltd issued 1000, 9% debentures of Rs.100 each. Write journal entries when they
are issued (a) at par, (b) at 20% premium and (c) at 10% discount.
Solution:
(a) Bank A/c 100000
Dr 100000
To 9% debentures A/c
(issue of 1000, 9% debentures at Rs.100)
Bank A/c Dr 120000
(b) To 9% debentures A/c 100000
To Security premium A/c 20000
(issue of 1000, 9% debentures at Rs.100 at
20% premium)
(c)
Bank A/c Dr 90000
Discount on issue of debentures A/c Dr 10000
To 9% debentures A/c 100000
(issue of 1000, 9% debentures at Rs.100 at
10% discount)
Illustration 15
A company issued 10000 debentures of R.100 each for subscription. Debenture moneys are payable as
Rs.30 on application, Rs.40 on allotment, Rs.20 on first call and Rs.10 on second call. A person who9
holds 200 debentures fails to pay the amount due at the time of allotment. He
however pays this amount with the first call money. Another person, who is holding 400
debentures, has paid all the calls in advance at the time of allotment. Give journal
entries in the books of company.
Solution:
Bank A/c Dr 300000
To Debenture Application A/c 300000
(Application money received)
Debenture application A/c Dr 300000
To Debentures A/c 300000
(Transfer of application money to
debentures A/c) 400000
Debenture allotment A/c Dr 400000
To Debentures A/c
(Allotment money due) 404000
Bank A/c Dr 392000
To Debenture allotment A/c 12000
To Debentures calls in advance
(Allotment money on 9800 debentures and
call on 400 debentures as advance received) 200000
Debenture first call A/c 200000
Dr
To Debentures A/c 8000
(First call money due) 8000
Debentures calls in advance A/c
Dr 200000
To Debentures first call A/c 8000
(transfer of calls in advance to first call A/c) 192000
Bank A/c Dr
To Debenture allotment A/c
To Debenture first call A/c 100000
(First call money received along with 100000
allotment due on 200 debentures)
Debenture final call A/c Dr
To Debentures A/c 96000
(Final call money due) 4000
100000
Bank A/c Dr
Debentures calls in advance A/c
Dr
To Share final call A/c
(Final call money received)
Solution:
a. Bank A/c Dr 95
Discount on issue of debentures A/c Dr 5
To Debentures A/c 100
(issue of debenture at Rs.95, repayable at
Rs.100)
b. Bank A/c Dr 95
Loss on issue of debentures A/c Dr 10
To debentures A/c 100
To premium on redemption A/c 5
(issue of debenture at Rs.95, repayable at
c. Rs.105)
Bank A/c Dr 100
Loss on issue of debentures A/c Dr 5
To debentures A/c 100
d. 5
To premium on redemption A/c
(issue of debenture at Rs.100,
repayable atRs.105)
e. Bank A/c Dr 105
To Debentures A/c 100
To security premium A/c 5
(issue of debenture at Rs.105, repayable
atRs.100)
Bank A/c Dr 102
Loss on issue of debentures A/c Dr 3
To debentures A/c
To security premium A/c 100
To premium on redemption A/c 2
(issue of debenture at Rs.102, repayable 3
atRs.105)
Horizontal Form
SCHEDULE VI, PART I
FORM OF BALANCE SHEET
HORIZONTAL FORM
Balance Sheet of ………………. (here enter the name of the company)
As on……………………….. (here enter the date at which the balance sheet is made out)
Figures Figures Figures Figures
for the for the for the for the
previous Liabilities current previous Assets current
year year year (5) year
Rs. Rs. Rs. Rs.
(1) (2) (3) (4) (6)
Share Capital: Fixed Assets:
Authorized… Shares
of Distinguishing as far as
Rs…. Each possible between
Issued: (distinguishing expenditure upon:
between the various (a) Goodwill
classes of capital and (b) Land
stating the particulars (c) Buildings
specified below, in (d) Leaseholds
respect of each (e) Railway sidings
class)…… Shares of
Rs… (f) Plant and
each. machinery
Subscribed: (g) Furniture and
(distinguishing between fittings
the various classes of (h) Development of
capital and stating the property
particulars specified (i) Patents,
below, in respect of trademarks and
each class)…… Shares
of designs
Rs… each.. Rs…
called (j) Live stock, and
up. (k) Vehicles, etc.
(of the above (Under each head the
Miscellaneous
Expenditure
(To the extent not
written off or adjusted).
1. Preliminary
expenses
2. Expenses including
commission or
brokerage or
underwriting or
subscription of
shares or
debentures.
3. Discount allowed on
the issue of shares
or debentures
4. Interest paid out of
capital during
construction (also
stating the rate of
interest).
5. Development
expenditure not
adjusted.
6. Other
sums(specifying
nature)
Profit and Loss Account
(Show here the debit
balance of profit and
loss account carried
forward after deduction
of the uncommitted
reserves, if any).
Vertical Form
Vertical form of balance sheet inserts as Part B of Part I of Schedule VI to the
Companies Act, 1956 by GSR No. 220(E) dated 12 3 1979 is as follows:
Re.0.5 per share was paid during the year. There was a credit balance of Rs. 35000 in the
Profit and Loss Account brought from the previous year. Te following proposals was passed:
a. To pay the year’s dividend on the preference shares
b. To pay a final dividend on equity shares at Re.0.50 per share top
make a total dividend of Re. 1 per share for that year.
c. To provide for taxation @50% on the net profit
d. To transfer Rs.25000 to General Reserve.
e. To carry forward the balance.
Show the Profit and Loss Appropriation Account.
Solution: 300000
Net profit before charging depreciation and managerial 60000
commission Less Depreciation 240000
24000
Less Managerial commission (10%) 216000
108000
Less Provision for taxation (50%) 108000
Income tax is payable in the assessment year on the income earned during the previous
year. A company will estimate the tax payable for the current accounting period and on this basis it
will make provision for taxation. Provision for taxation is debited to Profit and loss Account and it
will appear on the liability side of balance sheet under the head ‘Provisions’. When assessment
completed, the provision for tax will be adjusted. If the assessed tax is more than the provision
made in the previous year, the excess has to be shown on the debit side of Profit and Loss
Appropriation Account. If the assessed tax is less than the opening provision, such excess
provision should be credited to the Profit and Loss Appropriation Account.
Dividend
The divisible profit (profit available to shareholders) of a company is distributed
among the shareholders of the company on the basis of number of shares held. This is
called dividend. The Board of Directors recommends the amount of dividend and the
shareholders in their annual general meeting declare the dividend recommended by the
Board of Directors. Dividend is usually paid on paid up capital.
Proposed dividend
It is the dividend recommended by Board of Directors after the close of the books
of account. When it I approver by the shareholders in the annual general meeting, it
becomes final dividend.
Interim dividend
Interim dividend refers to the dividend paid by the company before the preparation
of final accounts. It is declared between two annual general meetings.
Final dividend
It is the dividend which is proposed and declared at the end of the accounting
year after the close of the books of account.
Unclaimed dividend
It refers to the dividend not yet claimed by the shareholders within 30 days of
declaration of dividend. It is shown as a current liability in the balance sheet.
Corporate Dividend Tax (CDT)
The companies distributing dividend are required to pay tax on such dividends. It is
called Corporate Dividend Tax (CDT). CDT is payable on any amount declared, distributed
or paid by a company as dividend. At present, the rate of CDT is 16.995 %( 17%). Corporate
Dividend Tax is shown on the debit side of Profit and Loss Appropriation Account and on the
liability side of Balance sheet under the head ‘Current liabilities and Provisions’
(Provisions).
Transfer to Reserves
Generally, Board of Directors has the discretionary power regarding the transfer of profit
to the reserve. However, as per Section 205(2A) of the Act, it is compulsory for a company to
transfer certain minimum amount to the reserve at a rate not exceeding 10%. Amount of transfer
to reserve depends on the rate at which dividend is to be declared as follows:
i. If the dividend proposed exceeds 10% but not exceed 12.5% of the paid up capital, the amount
to be transferred to the reserve shall not be less than 2.5% of the current profits.
ii. If the dividend proposed exceeds 12.5% but not exceed 15% of the paid up capital, the amount
to be transferred to the reserve shall not be less than 5% of the current profits.
iii. If the dividend proposed exceeds 15% but not exceed 20% of the paid up capital, the amount to
be transferred to the reserve shall not be less than 7.5% of the current profits.
iv. If the dividend proposed exceeds 20% of the paid up capital, the amount to be
transferred to the reserve shall not be less than 10% of the current profits.
Illustration 2
st
The following is the trial balance of the Good Hope Ltd. as on 31 December 2011.
Debtors and Creditors 250000 200000
Purchases and Sales 647000 983500
Returns 4700 3500
Fixed Assets at cost 1597900
Promotion expenses 13520
Share capital (Rs.100 per share) 1250000
Sinking fund 250000
Reserve fund 47600
Bad debt Reserve 10000
Cash 17750
Manufacturing expenses 21000
Wages 75000
Unclaimed dividends 1700
Interest on investments 11400
Depreciation 70000
Administrative expenses 34680
4% Debentures 300000
Interest on debentures 6000
Sales expenses 8000
Bad debts 3400
Depreciation fund 202400
Bill s payable 9300
Profit and Loss Account 10600
Investments 350000
Sundry expenses 1050
st
Stock on 1 January 2011 130000
Goodwill at cost 50000
3280000 3280000
Adjustments:
a. Closing stock amounted to Rs.137000
b. Maintain the reserve for debtors @ 5%
c. Write off preliminary expenses.
d. Add Rs.10000 to sinking fund
e. Provide for debenture interest.
Solution:
Good Hope Ltd.
2390150 2390150
Illustration 3
st
Following is the trial balance of Standard Ltd as on 31 March 2011:
st
Stock on 31 March 2010 75000
Sales 350000
Purchases 245000
Wages 50000
Discount 5000
Furniture and fittings 17000
Salaries 7500
Rent 4950
Sundry expenses 7050
st
Profit and loss appropriation Account on 31 March 2010 15030
Dividend paid 9000
Share capital 100000
Debtors and creditors 37500 17500
Plant and machinery 29000
Cash and bank 16200
Reserve 15500
Patent and trade mark 4830
______ _______
503030 503030
______ _______
Prepare Profit and loss account for the year ended 31stMarch 2011 and
balance sheet as on that date after taking into consideration the following adjustments:
st
a. Stock on 31 March 2011 was valued at Rs.82000
b. Depreciation on fixed assets @ 10%
c. Make a provision for income tax @ 50%
d. Provide corporate dividend tax @ 10%.
Solution:
Standard Ltd
Profit and Loss Account
st
For the year ended 31 March 2011
To Opening stock 75000 By Sales 350000
To Purchases 245000 By Closing stock 82000
To Wages 50000
To Gross profit c/d 62000
432000 432000
7500
To Salaries 4950 By Gross profit b/d 62000
To Rent 7050 By Discount 5000
To Sundry expenses
To Depreciation on
plant and machinery 2900
patents and trademark 483
furniture and fittings 1700
To provision for Income tax 21209
To Net Profit c/d 21208
67000 67000
15030
To Dividend paid 9000 By Balance b/d 21208
To Corporate dividend tax 900 By Net Profit for current year
(10% of dividend 9000)
To Balance c/d (Surplus 26338
carried to Balance sheet) 36238 36238
Exercise:
1. Amulya Ltd. was registered with an authorized capital of Rs.3000000 in equity shares of
st
RS.10 each. Following is the list of balances taken from its books on 31 March 2011:
Purchases 925000 General expenses 84175
st
Wages 424325 Stock on 1 April 2010 375000
Manufacturing expenses 65575 Goodwill 100000
Salaries 70000 Cash in hand 28750
Bad debts 10550 Cash at bank 199500
Directors’ fee 31125 Subscribed and fully paid
Debenture interest paid 45000 capital 2000000
Preliminary expenses 25000 Profit and loss account (cr.) 72500
Calls in arrears 37500 6% debentures 1500000
Financial Accounting Page 108
School of Distance Education
M ODU LE - I I I
1. Statutory Reserve
As per Section 17, banking companies incorporated in India hall transfer every year at least
25% of its profit before any dividend is declared to a Statutory reserve (Reserve fund) until the
amount of the reserve together with the security premium Account is equal to the paid up
capital.
Banks are required to maintain with the Reserve Bank of India a cash reserve of
at least 3% of the total of its demand and time liabilities in India.
3. Statutory Liquidity Ratio (SLR)
Banks are also required to maintain atleas6t 25% of the demand and time liabilities in
the
form of liquid assets like cash, gold or unencumbered. SLR may vary in a range of 25% to
40%.
4. Non – Banking Assets
These are the assets which are not used in the ordinary course of business of banking, but
they are such immovable and movable properties which come under the possession o t he
banking company for recovering the amount due from customers.
5. Minimum Capital and Reserves
In case of a banking company incorporated in India, the sum of its paid up capital
and reserves shall not be less than the amount mentioned below:
Illustration 1
st
Following figures have been obtained from the books of Rai Bank Ltd for the year ending 31
March 2011(figures in ‘000):
Issued and subscribed capital Rs.1000, Interest and discount earned Rs.3800,
Commission and exchange earned Rs.195, Interest paid Rs.2000, Salaries and wages
Rs.210, Directors fees Rs.35, Rent and taxes Rs.70, Postage and telegrams Rs.61,
Profit on sale of investments Rs.240, Loss on sale of investments Rs.38, Rent
received Rs. 62, Depreciation Rs.31, Stationary Rs.60 and Auditors fees Rs.8.
Additional information:
st
a. The profit and loss account had a balance of Rs.10,00,000 on 1 April 2010.
b. An advance of Rs.12,00,000 has become doubtful and it is expected that only
50% of the amount due can be recovered from the security.
c. The provision of tax is made at 50%.
d. A dividend of 10% is proposed.
st
Prepare Profit and Loss Account of Rai Bank Ltd for the year ending 31 March 2011.
Solution:
Solution:
National Bank Ltd
Profit and Loss Account
st
For the year ending 31 March 2011 (000s omitted)
Schedule Year ended Year ended
No 31.3.2011 31.3.2010
I. Income
Interest earned 13 1364.00
Other income 14 18.50
Total 1382.50
II. Expenditure
Interest expended 15 774.00
Operating expenses 16 170.40
Provisions and contingencies 58.00
Total 1002.40
III. Profit/ Loss
Net profit / loss for the year(I II) 380.10
Profit/loss brought forward
Total 380.10
IV. Appropriations
Transfer to statutory 95.03
reserves (380.10x25%)
Transfer to other reserves
Transfer to government/
proposed 285.07
Dividend 380.10
Balance carried over to Balance
sheet
Total
SCHEDULE 13 – INTEREST
EARNED (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Interest/ discount on
advances/bills(518+446+390+108 98) 1364.00
II. Income on investments
III. Interest on balances with Reserve Bank of
India and other inter bank funds
IV. Others
Total 1364.00
SCHEDULE 15 – INTEREST
EXPENDED (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Interest on deposits(220+554) 774.00
Total 774.00
Balance Sheet
The balance sheet of a banking company is prepared according to Form A in
Third Schedule which is as follows:
BALANCE SHEET OF …… (Here enter name of the banking company)
st
as on 31 March (Year) (000s omitted)
Schedule As on As on
No 31.3..(Current 31.3.(Previous
Year ) Year)
Capital & Liabilities
Capital 1
Reserves & Surplus 2
Deposits 3
Borrowings 4
Other Liabilities and Provisions 5
Total
Assets
Cash and balances with RBI 6
Balances with banks & money at call and
short notice 7
Investments 8
Advances 9
Fixed Assets 10
Other Assets 11
Total
Contingent liabilities 12
Bills for collection
SCHEDULE 1 – CAPITAL
As on As on
31.3..(Current 31.3.(Previous
Year ) Year)
I. For Nationalized Banks
Capital (Fully owned by Central Government
Total
Total
For other Banks
Authorised 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
Total
SCHEDULE 4 – BORROWINGS
As on As on
31.3..(Current 31.3.(Previous
Year ) Year)
I. Borrowings in India
(i) Reserve Bank of India
(ii) Other banks
(iii) Other institutions and agencies
II. Borrowings outside India
Total
Secured borrowings included in I & II above –
Rs.
SCHEDULE 5 – OTHER LIABILITIES AND
PROVISIONS
As on As on
31.3..(Current 31.3.(Previous
Year ) 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 As on
31.3..(Current 31.3.(Previous
Year ) Year)
I. Cash in hand
(including foreign currency notes)
II. Balances with Reserve Bank of India
(i) In current accounts
(ii) In other deposit accounts
Total (I
&II)
SCHEDULE 7 – BALANCES WITH BANKS & MONEY AT CALL & SHORT NOTICE
As on As on
31.3..(Current 31.3.(Previous
Year ) Year)
I. In India
(i) Balances with banks
(a) In current accounts
(b) In other deposit accounts
(ii) Money at call and short notice
SCHEDULE 8 – INVESTMENTS
As on As on
31.3..(Current 31.3.(Previous
Year ) 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
SCHEDULE 9 – ADVANCES
As on As on
31.3..(Current 31.3.(Previous
Year ) Year)
A.
(i) Bills purchased and discounted
(ii) cash credits, overdrafts and loans repayable on
demand
Total
(i) In India
(ii) Outside India
V. Acceptances, endorsements and
other obligations
VI. Other items for which the bank is
contingently liable
Total
Explanation of some items relating to Balance Sheet
1. Money at call and short notice: It represents temporary loans to bill brokers,
stock brokers and other banks. If the loan is given for one day, it is called
“money at call” and if the loan cannot be called back on demand and will
require at least a notice of three days for calling back, it is called “money at
short notice”.
2. Advances: Advances include Bills discounted and purchased, loans, cash credit
and overdraft.
3. Inter office adjustments: Every head office will have a number of transactions with
its branches. The head office makes necessary adjustments in its books on the
receipt of information from the branches. On the date of balance sheet some
transaction may remain unadjusted in the books of the head office. Such entries
are recorded in the balance sheet under the sub heading ‘Branch Adjustments’
and may appear on the assets side under the heading ‘Other Assets’ if it has a
debit balance and on t e liabilities side under the heading ‘Other Liabilities’ if it
has a credit balance.
4. Bills for Collection: When the bank receives bills receivables from its customers
for collection, it keeps them till maturity. On the date of maturity when bills are
collected, customers account is credited with the amount collected. If some bills
remain outstanding, such bills are treated by the banks as outstanding bills for
collection. It is shown as ‘Contingent Liability (Schedule 12)’.
5. Acceptance, endorsement and other obligation: This represents bank’s liability on
account of bills endorsed or accepted on behalf of its customers. For greater
security, the drawer of bill wants acceptance of the drawee’s bank. The bank
incurs a liability by accepting bills on behalf of customers. On the maturity of bill,
the bank pays and collects the amount from its customers. At the end of the
accounting period, if tee is any outstanding bills it is shown on the ‘Contingent
Liability (Schedule 12)’.
Illustration 3
From the following particulars, prepare the final accounts of Jaya Bank Ltd for the
st
year ended 31 March 2011.
Share capital 500000
Reserve Fund 1000000
Fixed deposit 2000000
Savings bank deposit 3000000
Current accounts 7000000
Borrowed from the bank 200000
Investments 3000000
Premises 1200000
Cash in hand 60000
Cash at bank 2800000
Money at call and short notice 300000
Interest accrued and paid 200000
Salaries 80000
Rent 30000
Profit and Loss Account (01.04.2010) 160000
Interest earned 450000
Bills discounted 500000
Bills payable 800000
Loans, advances, overdraft and credits 7000000
Unclaimed dividends 30000
Sundry creditors 30000
`
15170000 15170000
The bank had the bills for Rs.1400000 as collection for its constituents and
also acceptance and endorsements for them amounting to Rs.400000.
Solution:
Profit and Loss Account of Jaya Bank Ltd.
For the year ended 31st March 2011 (000s omitted)
Schedule Year ended Year ended
No 31.3.2011 31.3.2010
I. Income
Interest earned 13 450
Other income 14
Total 450
II. Expenditure
Interest expended 15 200
Operating expenses 16 110
Provisions and contingencies
Total 310
III. Profit/ Loss
Net profit / loss for the year(I II) 140
Profit/loss brought forward 160
Total 300
IV. Appropriations
Transfer to statutory reserves 35
(140x25%)
Transfer to other reserves
Transfer to government/
proposed 265
Dividend 300
Balance carried over to Balance sheet
Total
SCHEDULE 13 – INTEREST
EARNED (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Interest/ discount on advances/bills 450
Total 450
SCHEDULE 14 – OTHER
INCOME (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Commission, exchange and brokerage
II. Profit on sale of investments
Less: Loss on sale of investments
III. Miscellaneous income (Rent received)
Total
SCHEDULE 15 – INTEREST
EXPENDED (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Interest on deposits 200
Total 200
SCHEDULE 16– OPERATING
EXPENSES (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Payments to and provisions for employees 80
II. Rent, taxes and lighting 30
Total 110
st
Balance Sheet of Jaya Bank Ltd as on 31 March 2011 (000s omitted)
Schedule As on As on
No 31.3.2011 31.3.2010
Capital & Liabilities
Capital 1 500
Reserves & Surplus 2 1300
Deposits 3 12000
Borrowings 4 200
Other Liabilities and Provisions 5 860
Total 14860
Assets
Cash and balances with RBI 6
60
Balances with banks & money at call and
short notice 7
3100
Investments 8
3000
Advances 9
7500
Fixed Assets 10
1200
Other Assets 11
Total
Contingent liabilities 12 14860
Bills for collection 400
1400
SCHEDULE 4 – BORROWINGS
As on As on
31.3.2011 31.3.2010
I. Borrowings in India
Reserve Bank of India
Other banks 200
Other institutions and agencies
II. Borrowings outside India
200
Total
SCHEDULE 5 – OTHER
LIABILITIES AND PROVISIONS
As on As on
31.3.2011 31.3.2010
I. Bills payable 800
II. Inter office adjustments (net)
III. Interest accrued
IV. Others (including provisions)30+30 60
Total 860
SCHEDULE 7 – BALANCES WITH BANKS & MONEY AT CALL & SHORT NOTICE
As on As on
31.3.2011 31.3.2010
I. In India
Balances with banks 2800
Money at call and short notice 300
3100
Total
SCHEDULE 8 – INVESTMENTS
As on As on 31.3.2010
31.3.2011
I. Investments in India 3000
II. Investments outside India
Total
3000
SCHEDULE 9 – ADVANCES
As on As on
31.3.2011 31.3.2010
A.
(i) Bills purchased and discounted 500
(ii) cash credits, overdrafts and loans repayable on
demand 7000
(iii) Term loans
7500
Total
SCHEDULE 10 – FIXED
ASSETS
As on As on
31.3.2011 31.3.2010
I. Premises
st
At cost on 31 March of the preceding 1200
year
II. Other fixed Assets (including furniture and
fixtures)
st
At cost on 31 March of the preceding 1200
year
Total
SCHEDULE 11 – OTHER
ASSETS
As on As on
31.3.2011 31.3.2010
I. Inter office adjustments (net)
II. Interest accrued
III. Tax p[aid in advance/ tax deducted at
source IV. Stationery and stamps
V. Non banking assets acquired in
satisfaction of claims
VI. Others
Total
Illustration 4
In respect 0f the following transactions of Best Bank Ltd pass necessary journal entries as
st
well as their treatment in the P&L A/c and Balance Sheet for the year ended 31 March 2011.
Solution:
Calculation of Rebate on bills discounted
Due date No. of days Amount Rs. Rate of Unexpired Discount
after 31.12.11 discount
%
26.03.2011 85 50000 5 50000x5/100x85/365= 582
22.01.2011 22 100000 5 100000x5/100x22/365= 301
23.01.2011 23 400000 5 400000x5/100x23/365= 1260
03.05.2011 123 30000 5 30000x5/100x123/365= 506
2649
Rebate on bills discounted = 2649
Journal entry:
Interest and discount A/c Dr 2649
To Rebate on bills discounted. 2649
Solution:
Profit and Loss Account of National Bank Ltd.
st
For the year ended 31 March 2011
(000s omitted)
Schedule Year ended Year ended
No 31.3.2011 31.3.2010
I. Income
Interest earned 13 712
Other income 14 44
Total 756
II. Expenditure
Interest expended 15 161
Operating expenses 16 182
Provisions and contingencies 129
Total 472
Total 712
SCHEDULE 14 – OTHER
INCOME (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Commission, exchange and brokerage 44
II. Profit on sale of investments
Less: Loss on sale of investments
III. Miscellaneous income (Rent received)
Total 44
SCHEDULE 15 – INTEREST
EXPENDED (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Interest on deposits 161
Total 161
SCHEDULE 16– OPERATING
EXPENSES (000s omitted)
Year ended Year ended
31.3.2011 31.3.2010
I. Payments to and provisions for employees
II. General expenses 182
Total 182
st
Balance Sheet of National Bank Ltd as on 31 March 2011 (000s omitted)
Schedule As on As on
No 31.3.2011 31.3.2010
Assets
Cash and balances with RBI 6 2239
Balances with banks & money at call and
short notice 7 200
Investments 8 10883
Advances 9 21813
Fixed Assets 10 2218
Other Assets 11
Total 37353
Contingent liabilities 12 1600
Bills for collection 500
SCHEDULE 1 CAPITAL
As on As on
31.3.2011 31.3.2010
Authorised capital: 20000 Shares of Rs.100
each
Issued capital: 20000 Shares of Rs.100 each
Subscribed capital: 20000 Shares of Rs.100
each 2000
Called up capital: 20000 Shares of Rs.100
each
2000
Rs.100 each fully paid
Less: Calls unpaid
Add: Forfeited shares
Total
SCHEDULE 2 – RESERVES
& SURPLUS
As on 31.3.2011 As on
31.3.2010
I. Statutory Reserves
Opening Balance 1000
Additions during the year 71 1071
II. Capital Reserves
III. Securities Premium
IV. Revenue & Other Reserves
1514
SCHEDULE 3 –
DEPOSITS
As on 31.3.2011 As on 31.3.2010
A.
I. Demand Deposits 20244
II. Saving Bank Deposits 2920
III. Term Deposits 4000
Total 27164
(I+II+III)
B.
(i) Deposits of branches in India
(ii) Deposits of branches outside India
27164
Total
SCHEDULE 4 –
BORROWINGS
As on 31.3.2011 As on
31.3.2010
I. Borrowings in India
Reserve Bank of India
Other banks 6482
Other institutions and agencies
III. Borrowings outside India
6482
Total
SCHEDULE 5 – OTHER LIABILITIES AND PROVISIONS
As on As on
31.3.2011 31.3.2010
I. Others (including provisions)
Rebate on bills discounted 64
Provisions 129 193
Total 193
Total
200
II. Outside India
200
Grand Total (I+II)
SCHEDULE 8 – INVESTMENTS
As on As on 31.3.2010
31.3.2011
I. Investments in India
Investments 9883
Reserve Fund Investment 1000 10883
Total
10883
SCHEDULE 9 – ADVANCES
As on As on
31.3.2011 31.3.2010
A.
(i) Bills purchased and discounted 6228
(ii) cash credits, overdrafts and loans repayable on
demand 15585
(iii) Term loans
21813
Total
M ODU LE - I V
Types of Insurance
From accounting point of view, the insurance may be divided into two as follows:
1. Life Insurance
A life insurance contract is a long term contract in which the assured must pay
the
premium at stated intervals and the insurer guarantee to pay a certain sum of money to
the assured on the happening of the event which is certain (either death or expiry of the
fixed period). Section 2 of Indian Insurance Act 1938 defines life insurance as “life
insurance business is the business of effecting contracts upon human life”.
2. General Insurance
All insurance other than life insurance is general insurance. Under this type of
insurance, the insurer undertakes to indemnify the loss suffered by the insured on
happening of a certain event in consideration for a fixed premium. Usually all these are
short term agreements for a year. Fire insurance, marine insurance, accident
insurance, burglary insurance, third party insurance etc. are the examples for general
insurance.
FORM A BS
Name of the insurer
Registration No. and Date of Registration with the IRDA
st
Balance Sheet as at 31 March, 20….
No. Particulars Sched Current Previous
ule Year Year
(Rs.’00
0) (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
Total
Application of Funds
Investments
Shareholders’ 8
Policyholders’ 8A
Assets held to Cover Linked 8B
Liabilities Loans 9
10
Fixed Assets
Current Assets
11
Cash and Bank Balances
12
Advances and Other Assets
Sub Total (A) 13
Current Liabilities 14
Provisions
Sub Total (B)
Net Current Assets (C)=(A) (B) 15
Miscellaneous Expenditure (to the
extent not written off or adjusted)
Debit Balance in Profit and Loss
Account (Shareholders’ Account)
Total
CONTINGENT LIABILITIES
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Partly paid up investments
2. Claims, other than against policies, not acknowledged 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
7. accounts
Others (to be specified)
Total
3. Single Premiums
Total Premium
SCHEDULE 2 – COMMISSION
EXPENSES
Particulars Current Previous
Year Year
(Rs.’000)
(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.
SCHEDULE 3 – OPERATING EXPENSES RELATED TO INSURANCE BUSINESS
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Employees’ remuneration & welfare benefits
2. Travel, conveyance and vehicle running expenses
3. Training expenses
4. Rents, rates & taxes
5. Repairs
6. Printing & stationery
7. Communication expenses
8. Legal & Professional charges
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
Advertisement and publicity
11. Interest and bank charges
12. Others(to be specified)
13. Depreciation
14. Total
Note: Items of expenses and income in excess of one percent of the total premiums
(less reinsurance) or Rs.500000 whichever is higher, shall be shown as a separate line
item.
SCHEDULE 4 – BENEFITS PAID
[NET]
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Insurance Claims:
(a) Claims by Death
(b) Claims by Maturity
(c) Annuities/Pension payment
(d) Other benefits, specify.
2. (Amount ceded in reinsurance):
(a) Claims by Death
(b) Claims by Maturity
(c) Annuities/Pension payment
(d) Other benefits, specify.
3. Amount accepted in reinsurance:
(a) Claims by Death
(b) Claims by Maturity
(c) Annuities/Pension payment
(d) Other benefits, specify.
Total
Notes: (a) claims include specific claims settlement costs, wherever applicable.
(b)Legal and other fees and expenses shall also form part of the claims cost,
wherever applicable.
SCHEDULE 5 – SHARE
CAPITAL
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Authorised 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
Notes:
(a) Particulars of the different classes of capital should be separately stated.
(b) The amount capitalized on account of issue of bonus shares should be
disclosed.
(c) In case any part of the capital 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
Shareholders No. of % of No. of % of
Shares Holding Shares Holding
Promoters
*Indian
*Foreign
Others
Total
SCHEDULE 6 – RESERVES AND
SURPLUS
No Particulars Current Previous
. Year Year
(Rs.’000
) (Rs.’000)
1. Capital Reserve
2. Capital Redemption Reserve
3. Share Premium
4. Revaluation Reserve
5. General Reserves
6. Catastrophe Reserve
7. Other Reserves (to be specified)
8. Balance of Profit in P&L A/c
Total
Note: Additions to and deductions from the reserves shall be disclosed under each of
the specified heads.
SCHEDULE 7 – BORROWINGS
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Debentures/Bonds
2. Banks
3. Financial Institutions
4. Others (to be specified)
Total
Total
Total
SCHEDULE 9– LOANS
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Security wise
Classification Secured
(a) On mortgage of property
(aa)In India
(bb)Outside India
(b) On Shares, Bonds, Govt. Securities, etc.
(c) Loans against policies
(d) Others (to be specified)
Unsecured
Total
2. Borrower wise Classification
(a) Central and State Governments
(b) Banks and Financial Institutions
(c) Subsidiaries
(d) Companies
(e) Loans against policies
(e) Others (to be specified)
Total
3. Performance wise Classification
(a) Loans classified as standard
(aa)In India
(bb)Outside India
(b) Non standard loans less provisions
(aa)In India
(bb)Outside India
Total
4. Maturity wise Classification
(a) Short Term
(b) Long Term
Total
Goodwill
Intangibles (specify)
Land Freehold
Leasehold Property
Buildings
Furniture & Fittings
Information
Technology
Equipment
Vehicles
Office Equipment
Others (Specify nature)
Total
Work in progress
Grand Total
Previous Year
SCHEDULE 11– CASH AND BANK
BALANCES
No. Particulars Current Previous
Year Year
(Rs.000) (Rs.000)
1. Cash (including cheques, drafts and stamps)
2. Bank Balances
(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)
Total
Balances with non scheduled banks in 2 and 3 above
Cash and Bank Balances
1. In India
2. Outside India
Total
FORM A – RA
Name of the insurer: Safe Insurance Co. Ltd. Registration No. and Date of Registration with the
IRDA st
Revenue Account for the year ended 31 March,
2011 Policyholders’ Account (Technical Account)
No Particulars Sched Current Previous
. ule Year Year
(Rs.000) (Rs.’000)
Premiums earned – net
(a) Premium 1 1411380
(b) Reinsurance ceded ( )
(c) Reinsurance accepted (+)
Income from investments
(a) Interest, dividends & rent – Gross
(b) Profit on sale/redemption of investments 195680
(c) (Loss on sale/redemption of investments)
(d) Transfer/ Gain on revaluation/change in
fair value
Other income (to be specified):
Consideration for annuities granted
Transfer fee
Total (A) 164254
Commission 258
Operating Expenses related to insurance business 1771572
Provision for doubtful debts 2 19148
Bad debts written off 3 63840
Provision for tax
Provisions (other than taxation)
(a) For diminution in the value of
investments (net)
(b) Others (to be
specified): Income tax
Total (B)
Benefits Paid (Net)
Interim Bonuses paid 11420
Change in valuation of liability in respect of life 94408
policies 4 363494
Total (C)
Surplus (Deficit) (D)=(A) (B) (C)
Appropriations
Transfer to Shareholders’ Account 363494
Transfer to Other Reserves (to be specified) 1313670
Balance being Funds for Future Appropriations
Total (D)
1313670
1313670
SCHEDULE 1 PREMIUM
No Particulars Current Previous
. Year Year
(Rs.000) (Rs.’000)
1. First Year Premiums 1411380
2. Renewal Premiums
3. Single Premiums
Total Premium 1411380
SCHEDULE 2 – COMMISSION EXPENSES
Particulars Current Previous
Year Year
(Rs.000) (Rs.’000)
Commission paid 19148
Direct First Year Premiums
Renewal Premiums
Single Premiums
Add: Commission on Re insurance Accepted
Less: Commission on Re insurance Ceded
Net Commission 19148
SCHEDULE 3 – OPERATING EXPENSES RELATED TO INSURANCE BUSINESS
No Particulars Current Previous
. Year Year
(Rs.000) (Rs.’000)
1. Employees’ remuneration & welfare benefits
2. Travel, conveyance and vehicle running expenses
3. Training expenses
4. Rents, rates & taxes
5. Repairs
6. Printing & stationery
7. Communication expenses
8. Legal & Professional charges
9. Medical fees
10. Auditors’ fees, expenses etc
11. Advertisement and publicity
12. Interest and bank charges
13. Others(to be specified):
Expenses of management 63840
14. Depreciation
Total 63840
Solution:
FORM A – RA
Name of the insurer: Guarantee Life Insurance Co. Ltd. Registration No. and Date of
Registration with the IRDA
st
Revenue Account for the year ended 31
March, 2011 Policyholders’ Account (Technical Account)
No Particulars Sched Current Previous
. ule Year Year
(Rs.’00
0) (Rs.’000)
Premiums earned – net
(a) Premium 1 330800
Income from investments
(a) Interest, dividends & rent – Gross 225300
Other income (to be specified):
Fines and fees 300
Total (A) 556400
Commission 2 48500
Operating Expenses related to insurance business 3 69400
Others (to be specified):
Total (B) 117900
Benefits Paid (Net) 4 130800
Total (C)
130800
Surplus (Deficit) (D)=(A) (B) (C) 307700
FORM A BS
Name of the insurer: Guarantee Life Insurance Co. Ltd.
Registration No. and Date of Registration with the IRDA
st
Balance Sheet as at 31 March, 2011
No Particulars Sched Current Previous
. ule Year Year
(Rs.’00
0) (Rs.’000)
Sources of Funds
Shareholders’ Funds:
Share Capital 5
Reserves and Surplus 6 4087700
Credit/[Debit] Fair Value Change Account
Sub Total 4087700
Borrowings 7
Policyholders’ Funds:
Credit/[Debit] Fair Value Change Account
Policy Liabilities
Insurance Reserves
Provision for Linked Liabilities
Sub Total
Funds for Future Appropriations
Total 4087700
Application of Funds
Investments 8 4047400
Loans 9 174700
Fixed Assets 10
4222100
Current Assets
Cash and Bank Balances 11
29600
Advances and Other Assets 12
93000
Sub Total (A)
122600
Current Liabilities 13
Provisions 14 257000
Sub Total (B)
Net Current Assets (C)=(A) (B) 257000
Miscellaneous Expenditure (to the extent not 134400
written off or adjusted) 15
Total
4087700
95% of net profit is payable as bonus to policyholders. While paying the above
bonus, interim bonus paid already has to be deducted.
Illustration 3
A life insurance company gets its valuation made once in every two years. Its life
st
assurance fund on 31 December 2011 was Rs.5555000 before providing for 55000
st
being the shareholders’ dividend for 2011. Its actuarial valuation on 31 December
2011 disclosed a net liability of Rs.3500000. an interim bonus of Rs.100000 was paid
to policyholders during the previous two years. Show Valuation Balance Sheet, Net
Profit for the period and Distribution of surplus. Solution:
st
Valuation Balance Sheet as on 31 December 2011
Liabilities Amount Assets Amount
Net Liability 3500000 Life Fund 5555000
Surplus (Bal. Fig) 2055000
5555000 5555000
Calculation of Net profit:
Surplus as per Valuation Balance Sheet 2055000
Less: Dividends payable to shareholders 55000
2000000
Add: Interim bonus paid 100000
FORM B – RA
Name of the insurer
Registration No. and Date of Registration with the IRDA
st
Revenue Account for the year ended 31 March, 20….
Policyholders’ Account (Technical Account)
No Particulars Sched Current Previous
. ule Year Year
(Rs.’00
0) (Rs.’000)
1. Premiums Earned (Net) 1
2. Others (to be specified)
3. Change in Provisions for unexpired risk
4. Interest, Dividend & Rent Gross
Total (A)
1. Claims Incurred 2
2. Commission 3
3. Operating Expenses related to insurance business 4
4. Others (to be
specified) Total (B)
Operating Profit/ (Loss) from Fire/ Marine/
Miscellaneous business (C)=(A B)
Appropriations
Transfer to Shareholders’ Account
Transfer to Catastrophe Reserve
Transfer to Other Reserves (to be
specified) Total (C)
Total (B)
Profit before tax
Provision for taxation
Profit after tax
Appropriations
(f) Interim dividends paid during the year
(g) Proposed final dividend
(h) Dividend Distribution Tax
(i) Transfer to Reserves or other
accounts (to be specified)
FORM B BS
Name of the insurer
Registration No. and Date of Registration with the IRDA
st
Balance Sheet as at 31 March, 20….
No Particulars Sched Current Previous
. ule Year Year
(Rs.000) (Rs.000)
Sources of Funds
Shareholders’ Funds:
Share Capital 5
Reserves and Surplus 6
Fair Value Change Account
Borrowings
Total 7
Application of Funds
Investments 8
Loans 9
Fixed Assets 10
Current Assets
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 15
written off or adjusted)
Debit Balance in Profit and Loss Account
Total
CONTINGENT LIABILITIES
No Particulars Current Previous
. Year Year
(Rs.000) (Rs.000)
1. Partly paid up investments
2. Claims, other than against policies, not
acknowledged 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
5. Repairs
6. Printing & stationery
7. Communication expenses
8. Legal & Professional charges
9. Medical fees
10. Auditors’ fees, expenses etc
(a) As auditor
(b) As adviser or in any other capacity, in respect of:
(j) Taxation matters
(ii) Insurance matters
(iii) Management services; and
(c) In any other capacity
11. Advertisement and publicity
12. Interest & bank charges
13. Others(to be specified)
14. Depreciation
Total
Note: Items of expenses and income in excess of one percent of the total premiums (less
reinsurance) or Rs.500000 whichever is higher, shall be shown as a separate line item.
SCHEDULE 5 – SHARE CAPITAL
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Authorised 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: Equity 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
Notes:
(a) Particulars of the different classes of capital should be separately stated.
(b) The amount capitalized on account of issue of bonus shares should be
disclosed.
(c) In case any part of the capital is held by a holding company, the same should
be separately disclosed.
5. Catastrophe Reserve
6. Other Reserves (to be specified)
7. Balance of Profit in P&L A/c
Total
Note: Additions to and deductions from the reserves shall be disclosed under each of
the specified heads.
SCHEDULE 7 – BORROWINGS
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Debentures/Bonds
2. Banks
3. Financial Institutions
4. Others (to be specified)
Total
SCHEDULE 8 – INVESTMENTS
No Particulars Current Previous
. Year Year
(Rs.’00
0) (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 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
Total
SCHEDULE 9– LOANS
No Particulars Current Previous
. Year Year
(Rs.’00
0) (Rs.’000)
1. Security wise
Classification Secured
(a) On mortgage of property
(aa)In India
(bb)Outside India
(b) On Shares, Bonds, Govt. Securities, etc.
(c) Others (to be specified)
Unsecured
Total
2. Borrower wise Classification
Goodwill
Intangibles (specify)
Land Freehold
Leasehold Property
Buildings
Furniture & Fittings
Information
Technology
Equipment
Vehicles
Office Equipment
Others (Specify nature)
Total
Work in progress
Grand Total
Previous Year
Illustration 4
From the following figures taken from the books of Asia Insurance Co. Ltd doing the
fire insurance business, prepare the final accounts for the year 2010 2011.
st
Fire fund on 1 April 2010 930000
General Reserve 450000
Investments 3600000
2701533
Premium
Claims paid 602815
Share capital – Equity shares @ Rs.100 each
900000
st 330000
Additional Reserve on 1 April 2010
75000
Profit and loss Account (credit)
112525
Reinsurance premium 21119
Claims recovered from reinsurers 48016
Commission on reinsurance ceded 250000
Advance income tax 20000
agents’ balance (Debit) 299777
Commission on direct business 60038
Commission on reinsurance accepted 22300
Outstanding premium 60000
st 431947
Claims intimated but not paid on 1 April 2010
Expenses of management 36000
Audit fees (General) 5804
Rate and tax (General) 67500
Rent (General) 153000
22500
Income from investments
182462
Sundry creditors
Cash in hand and bank balances
Solution:
FORM B – RA
Name of the insurer: Asia Insurance Co. Ltd
Registration No. and Date of Registration with the IRDA
st
Revenue Account for the year ended 31
March, 2011 Policyholders’ Account (Technical Account)
No Particulars Sched Current Previous
. ule Year Year
1. Premiums Earned (Net) 1 2483405
2. Others (to be specified)
3. Change in Provisions for unexpired risk
4. Interest, Dividend & Rent Gross
Total (A) 2483405
1. Claims Incurred 2 681696
2. Commission 3 311799
3. Operating Expenses related to insurance business 4 375947
4. Others (to be specified)
Total (B) 1369422
Operating Profit/ (Loss) from Fire business 1113963
(C)=(A B)
Appropriations
Transfer to Shareholders’ Account
Transfer to Catastrophe Reserve
Transfer to Other Reserves (to be specified)
Total (C) 1113963
FORM B PL
Name of the insurer: Asia Insurance Co. Ltd Registration No. and Date of Registration with the
IRDA
st
Profit and Loss Account for the year ended 31
March, 2011 Shareholders’ Account (Non technical Account)
No Particulars Sched Current Previous
. ule Year Year
1. Operating Profit/ (Loss)
(a) Fire Insurance 1113963
(b) Marine Insurance
(c) Miscellaneous Insurance
Income from investments
2.
(a) Interest, dividends & rent – Gross
153000
(b) Profit on sale/redemption of investments
Less: Loss on sale of investments
Other income (to be specified)
3. 1266963
Total (A)
4. Provisions (other than taxation)
For diminution in the value of
investments (net)
For Doubtful Debts
Others (to be specified)
5. Other Expenses
(a) Expenses other than those directly
related to the insurance business
(b) Bad debts written off
(c) Others (to be specified)
Rent 67500
Rates and taxes 5804
audit fees 36000 109304
Total (B) 109304
Profit before tax 1157659
Provision for taxation( ) 636712
Profit after tax 520947
Appropriations
(a) Interim dividends paid during
the year
(b) Proposed final dividend
(900000x8%) 72000
(c) Dividend Distribution Tax
(d) Transfer to Reserves or other
accounts (to be specified) 200000
general reserve
272000
Balance of Profit/Loss brought forward from last 248947
year 75000
Balance carried forward to the Balance Sheet
323947
FORM B BS
Name of the insurer: Asia Insurance Co. Ltd
Registration No. and Date of Registration with the IRDA
st
Balance Sheet as at 31 March, 2011
No Particulars Sched Current Previous
. ule Year Year
Sources of Funds
Shareholders’ Funds:
Share Capital 5 900000
Reserves and Surplus 6 973947
Fair Value Change Account
Borrowings 7
Total 1873947
Application of Funds
Investments 8 3600000
Loans 9
Fixed Assets 10
3600000
Current Assets
Cash and Bank Balances 11 182462
Advances and Other Assets 12 292300
Sub Total (A) 474762
Current Liabilities 13 126500
Provisions 14 2074315
Sub Total (B) 2200815
Net Current Assets (C)=(A) (B) 1726053
Miscellaneous Expenditure (to the extent not 15
written off or adjusted)
Debit Balance in Profit and Loss Account
Total 1873947
Schedules forming part of B RA
Particulars Amount Amount
Schedule 1 – Premium earned – net
Premium 2701533
less: Reinsurance 112525
Net premium 2589008
Adjustment for changes for reserve for unexpired risk
Add: Opening balance of reserve(930000+330000) 1260000
3849008
less: closing balance of reserve:
2589008x40% = 1035603
Additional opening = 330000 1365603 2483405
Schedule 3 – Commission
Commission paid 299777
Add: Reinsurance commission accepted 60038
359815
Less: Reinsurance commission ceded 48016 311799
Schedule 14 – Provisions
Reserve for unexpired risk(closing) 1365603
Provision for tax
636712
Proposed dividend 72000 2074315
Illustration 5: From the following trial balance of Zenith Insurance Company Ltd prepare Revenue
st
Account for Fire and Marine business and Profit and Loss Account for the year ended 31 March
2011 and a Balance Sheet on that date:
Investments 406980
Freehold premises 306142
Leasehold premises 12604
Agents balances 46212
Sundry debtors 17918
Advance income tax on interest and dividend 4513
Claims paid and outstanding:
Fire 102412
Marine 261512
Expenses of management:
Fire 96512
Marine 142218
Commission:
Fire 34921
Marine 62857
Interest accrued 919
Office furniture 14761
Preliminary expenses 90212
Cash and bank balance 101738
Share capital (4000 shares @ Rs. 100 each) 400000
Claims admitted but not paid:
Fire 4620
Marine 9808
Creditors 44962
Due to reinsurers:
Fire 2471
Marine 4143
Interest and dividend 19512
Other incomes 807
Premium received:
Fire 356418
Marine 859960
1702701 1702701
Provision for unexpired risk is to be made at 50% of the premium received for
fire business and 100% of the premium received for marine business.
Solution:
FORM B – RA
Name of the insurer: Zenith Insurance Co. Ltd
Registration No. and Date of Registration with the IRDA
st
Revenue Account for the year ended 31
March, 2011 Policyholders’ Account (Technical Account)
No Particulars Sched Fire Marine
. ule
1. Premiums Earned (Net) 1 178209
2. Others (to be specified)
3. Change in Provisions for unexpired risk
4. Interest, Dividend & Rent Gross
Total (A) 178209
1. Claims Incurred 2 102412 261512
2. Commission 3 34921 62857
3. Operating Expenses related to insurance business 4 96512 142218
4. Others (to be specified)
Total (B) 233845 466587
Operating Profit/ (Loss) from Fire business 55636 466587
(C)=(A B)
Appropriations
Transfer to Shareholders’ Account
Transfer to Catastrophe Reserve
Transfer to Other Reserves (to be specified)
Total (C) 55636 466587
FORM B PL
Name of the insurer: Zenith Insurance Co. Ltd Registration
No. and Date of Registration with the IRDA
st
Profit and Loss Account for the year ended 31
March, 2011 Shareholders’ Account (Non technical Account)
No Particulars Sche Current Previous
. dule Year Year
1. Operating Profit/ (Loss)
(a) Fire Insurance 55636
(b) Marine Insurance 466587
(c) Miscellaneous Insurance
2. Income from investments
(a) Interest, dividends & rent – Gross 19512
(b) Profit on sale/redemption of investments
Less: Loss on sale of investments
3. Other income (to be specified) 807
Total (A)
501904
Exercises:
1. Following were the balance extracted from the trial balance of the Southern Life
st
Insurance Co. Ltd. at 31 March 2011:
Rs. 000s Rs. 000s
Balance of account at the Claims admitted but not
beginning of the year 2000000 paid 6000
Govt. Securities 1000000 Surrenders 20000
Profit on realization of Single premiums 80000
assets 2000 Consideration for annuities
Investment fluctuation granted 50000
account 10000 Interest, dividends and rent
Claims under policies by received 70000
death 60000 Depreciation on furniture 3000
Claims under policies by Administrative expenses 36000
maturity 100000 Salaries 3000
Loans on mortgages 560000 Auditor’s fees 1500
Loans on policies 300000 Director’s fees 300
Freehold property and 103000 Legal expenses 1000
furniture 3600 Advertising 1400
Sundry creditors 2000 Printing, stationery and
Outstanding premiums 24000 others 10800
Commission paid 24000 Cash at bank 168400
Interest accrued not due 3000 Provision for depreciation 3000
Premium (other than
single) 200000
st
2. From the following balances of Mysore General Insurance Co. Ltd. as on 31
March 2011, prepare Revenue Accounts, Profit & Loss Account and Balance sheet.
Claims paid less Building (cost Rs.125000) 87000
reinsurance: Office equipment (cost
Fire 80000 Rs.48000) 30000
Marine 62000 Cash in hand 56000
General reserve 118000 Cash at bank 104000
Commission paid: Premium less reinsurance:
Fire 48000 Fire 210000
Marine 39000 Marine 163000
Share capital (20000 shares Tax deducted at source 9000
of Rs.100 each) 200000 Furniture (cost Rs. 18000) 12000
Expenses of management Premium due:
Fire 53000 Fire 28000
Marine 36000 Marine 20000
st
Reserve for unexpired risk Claims outstanding on 1
st
(1 April 2010): April 2010:
Fire 204000 Fire 14000
Marine 123000 Marine 2000
Investments at cost 2515000 Due from other insurers 27000
Depreciation 21000 Director’s fees 4000
st
Additional reserves (1 Commission on reinsurance
April 2010): ceded:
Fire 132000 Fire 23000
Marine 16000 Marine 2000
Interest accrued 25000 Dividends (Credit) 20000
Contingency reserve 39000 Interest on investments 100000
Investment reserve 47000 Due to other insurers 43000
st
(a) Claims outstanding on 31 March 2011 are: Fire Rs.17000, Marine Rs.6000
(b) Market value of investments is Rs.2401000.
(c) Increase additional reserve by 10% of net premium for the year for fire.
(d) Maintain reserves for unexpired risks at 50% of premium for the year in case of fire
insurance and 100% of premium for the year in case of marine insurance.
Ans: (Fire profit: Rs.127000, Marine loss: Rs.16000, Balance carried to Balance sheet:
Rs.139000
and Balance sheet total: Rs.2410000).
M ODU LE - V
At the end of each accounting year, every business enterprise is curious to know
whether it has earned a profit suffered a loss during an accounting period. Similarly, it
also wants to know its financial position. It is for these purposes, financial statements are
prepared.
1. Recorded fact: the term recorded facts refers to the data drawn from accounting
records. Only those facts which have been recorded in the books are shown in the
financial statements.
2. Periodical report: financial statements are prepare usually at the end of each year
to show the result of business operation and financial position of a firm.
3. Accounting principles: in the preparation of financial statements, certain
accounting principles, concepts and conventions are followed. For example, the
principle of cost price or market price whichever is less is followed.
4. Assumptions: business transactions are recorded on certain assumptions. For
example, in preparing financial statements, the accountants make many
assumptions like that the value of money remains constant, going concern
concepts etc..
5. Personal judgement: the financial statements are affected by the personal
judgement of accountant.
1. They provide necessary information about the financial activities to the interested
parties.
Financial Accounting Page 182
School of Distance Education
2. They provides necessary information about the efficiency or otherwise of the
management, regarding the proper utilization of the scarce resources.
3. They provide necessary information for predictions (financial forecasting).
4. They help to evaluate the earning capacity of the firm by supplying a statement of
financial position, a statement of periodical earnings together with a statement of
financial activities to the various interested persons.
5. They facilitate decisions regarding the changes in the manner of acquisition,
utilization, preservation and distribution of the scarce resources.
6. They facilitate decisions regarding replacement of fixed assets and expansion of
the firm.
7. They provide necessary data to the government for taking proper decisions
relating to duties, taxes and price control, etc. and for some legal and control
purposes.
8. They device remedial measures for the deviations between the actual and
budgeted performances.
9. They also provide necessary data and information to the managers for internal
reporting and formulation of overall policies.
10. They also help to safeguard the interest of shareholders who are not allowed to go
through the day-to-day affairs of the firm.
11. They help to settle disputes arising from High Court, Supreme Court, Arbitrators
etc.
12. They help the credit rating agencies to determine the rating of the Company.
ACCOUNTING STANDARDS
The IASC was formed in 1973 through an agreement made by professional accountancy
bodies from Australia, Canada, France, Germany, Ireland, Japan, Mexico, the
Netherlands, the UK and the USA
FASB has a unique position in the financial reporting process. Its main goal is to
provide leadership for public companies in establishing and improving the accounting
methods used to prepare financial statements.
1. Voluntary adoption
Companies can voluntarily adopt Ind AS for accounting periods beginning on or after
1 April 2015 with comparatives for period ending 31 March 2015 or thereafter.
However, once they have chosen this path, they cannot switch back.
2. Mandatory
Applicability Phase I
Ind AS will be mandatorily applicable to the following companies for periods beginning on
or after 1 April 2016, with comparatives for the period ending 31 March 2016 or
thereafter:
1. Companies whose equity and/or debt securities are listed or are in the process of
listing on any stock exchange in India or outside India and having net worth of 500
crore INR or more.
2. Companies having net worth of 500 crore INR or more other than those covered
above.
1. Companies whose equity and/or debt securities are listed or are in the process of
being listed on any stock exchange in India or outside India and having net worth
of less than rupees 500 crore.
2. Unlisted companies other than those covered in Phase I and Phase II whose net
worth are more than 250 crore INR but less than 500 crore INR.
3. Holding, subsidiary, joint venture or associate companies of above companies.
1. Improved financial reporting and tax planning: Under IFRS, companies will produce a
standardized and consistent set of accounting and financial reports for complying with
local statutory and consolidated requirements. This will help improve the analysis of
financial reporting and tax planning processes.
2. Improved day-to-day operations: Businesses will get faster access to more in-depth
financial performance information to use in analysing and making better decisions
about day-to-day operations.
3. Better managed resources: By standardizing processes and accounting, companies
will be able to standardize and streamline accounting systems across the enterprise
and reduce the cost of auditing and statutory reporting.
4. Improved financial controls: By standardizing the approach and control over statutory
reporting, businesses will reduce the risk of penalties and compliance problems
enterprise-wide and in individual countries.
5. Lowered cost of capital: Increased insight into financial results and adherence to high-
quality financial standards, as specified by IFRS, can benefit both companies and their
investors with reduced cost of capital.
Challenges of IFRS
1. It increases cost
2. Unlike several other countries the accounting framework in india is deeply affected by
laws and regulations.
3. If IFRS has to be uniformly understood and consistently applied, all stakeholders
employees, auditors, regulators, tax authorities etc. would need to be trained.
4. The industry would be able to raise capital.
5. It would provide professional opportunities to serve international clients.
6. Entity would need to incur additional cost for modifying their IT systems.
7. Difference between GAAP and IFRS may affect business decision.
8. Limited pool of trained resource and person having expert knowledge on IFRS.
9. Everybody is reluctant to change
10. There are practical difficulties for implementing certain IFRS.
Roadmap for implementation of Ind AS (or Convergence with IFRS) for scheduled
Commercial banks (Excluding RRBs), insurance Companies and NBFCs
a) NBFCs whose entity and / or debt securities are listed or are in the
process of listing on any stock exchange in india or outside india
having networth less than rs. 500 crore.
b) NBFCs other than those covered under phase I (a) and Phase II (a)
above, that are ulisted companies having networth of Rs. 250 crores
or more but less than Rs. 500 crores.
c) Holding, subsidiary, joint venture or associate companies of
companies covered under (a) above, other than those companies
already covered under corporate roadmap announced by the MCA.
Correspondi
Correspondin
ng
IAS NO TITLE g Indian
coveraged
GAAP
Ind AS
IAS.1 Presentation of financial statement AS1 IND – AS1
IAS.2 Inventories AS2 IND-AS2
IAS.7 Cash flow statement AS3 IND AS7
Accounting policies, changes in accounting estimate and
IAS.8 errors AS5 IND AS8
IAS.10 Events after the balancesheet date AS4 IND AS10
IAS.11 Construction contracts AS7 IND AS11
IAS 12 Income taxes AS22 IND AS 12
IAS.16 Property plant and equipment AS 10 & AS 6 IND AS 16
IAS.17 Leases AS19 IND AS 17
IAS.18 Revenue AS9 IND AS 18
IAS.19 Employee benefits AS 15 IND AS 19
Accounting for govt. grants and disclosure of govt
IAS.20 assistance AS 12 IND AS 20
IAS.21 The effect of changes in foreign exchange rate AS 11 IND AS 21
IAS.23 Borrowing cost AS 16 IND AS 23
IAS.24 Related party disclosures AS18 IND AS 24
IAS.26 Accounting and reporting by retirement benefits plan - -
IAS.27 Separate financial statements - -
IAS.28 Investments in associate and joint ventures AS 23 IND AS 28
1. IFRS is based on fair value concept. But, Indian accounting standards are based on
historical cost.
Financial elements
Financial elements are the important parts of conceptual framework. Some elements
are directly related ot the measurement of the financial position. Other elements are directly
related to the measurement of financial performance.
Financial elements are simply means the elements of financial statements. In other
words, financial elements are the elements from which financial statement and other form
of financial reports are to be constructed.
Assets:- Assets are the resources controlled by an entity as a result of past events and from
which future economic benefits are expected to flow to the entity.
Liabilities :- liabilities are the present obligations of an entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of resources
embodying economic benefits.
Equity:- equity is the residual interest in the assets of an entity after deducting all of its
liabilities. Equity is otherwise known as shareholders fund.
Income:- income is the increase in economic benefits during the accounting period in the
form of inflow or enhancements of assets, or decrease of liabilities that result in an increase
in equity.
Expenses:- expenses are decreases in economic benefits during the accounting period in the
form of outflows or depletion of assets, or incurrence of liabilities that result in decreases in
equity.
Recognition
In order for an asset to be recognized in the financial statements, it must meet the
definition laid down in the IASB framework. The definition is “ resources controlled by the
entity as a result of past events and from which future economic benefits are expected to
flow to the entity.
Apart from meeting the above definition, the framework has advised the following
recognition criteria that ought to be met before an asset is recognized in the financial
statements:
In order for a liability to be recognized in the financial statement, it must meet the
following definition provided by the framework.
“liabilities is a present obligation of the enterprise arising from past events, the
settlement of which is expected to result in an ouflow from the enterprise of resources
embodying economic benefits”
1. Economic benefit increases and thereby equity increases (in the form of inflow)
2. Assets increases or liability decreases, resulting in increase in equity(ie, economic
benefits increases)
Measurement
Bases of measurement
1. Historical cost
2. Current cost
3. Realizable cost
4. Present value