FINAL ACCOUNTS

According to Section 29 of the Banking Regulation Act the 1949, every banking company is required to prepare with reference to that year a Balance Sheet and Profit and Loss account as on the last working day of the year in the ‘ Form A’ and ‘Form B’ respectively set out in third schedule.

Revised forms of Balance Sheet and Profit and Loss Account

On 18-1-1991 the Government of India issued a notification to make amendments to the third schedule to the Banking Regulation Act incorporating the recommendations of Ghosh Committee (A Ghosh, Deputy Governor, RBI) relating to the formats of Balance Sheet and Profit and Loss account. As such, the Reserve Bank of India issued a circular as on 6-2-1992 to the Chief executives of all commercial banks to prepare and present their accounts under revised formats for the year ended 31st March 1992 and thereafter.

Revised Balance Sheet

With effect from 31st March 1992, the Balance Sheet of a bank is to be prepared as per the new form. In the new form, assets and liabilities are shown vertically along with the figures of the last year. In the top section, capital and liabilities are shown and in the bottom section, the assets are shown:

Capital and Liabilities

1. Capital: This is the first item to appear under the heading ‘ Capital and Liabilities’. Its details are shown in Schedule 1.
2. Reserves and Surplus: It is the second item to appear under ‘ Capital and Liabilities’. Statutory Reserves, Capital Reserve, Share Premium, Revenue Reserves, Profit and Loss Account balance etc. are shown under this item. Its details are shown under Schedule 2.
3. Deposits: It is the third item to appear under ‘ Capital and Liabilities’. Demand Deposits, savings bank deposits and term deposits are shown under this heading. The details are shown under Schedule 3.
4. Borrowings: It is the fourth item to appear under ‘ Capital and Liabilities’. Borrowings from Reserve Bank of India, other banks, institutions and agencies are shown under this item. The details are shown under Schedule 4.
5. Other Liabilities and Provisions: It is the last item to appear under ‘ Capital and Liabilities’. Bills payable inter office adjustments, interest due, provision for bad debts, provisions for taxation etc. are shown under this item. The details are shown in Schedule 5.

Assests

1. Cash and Balances with Reserve Bank of India: It is the first item to be shown under the heading 'Assests'. Cash in hand (including foreign currency note); and balances with RBI are shown under this item. The details are shown under Schedule 6.
2. Balances with Banks and Money at Call and Short Notice: It is the second item to be shown under the heading 'Assests'. Balances with other banks and Money at call and short notice are shown under it. The details are shown in Schedule 7.
• Money at Call and Short Notice represent inter bank loans, short loans to stock brokers etc. Money at call is refundable at 24 hours notice and Money at Short Notice is refundable at 7 day's notice.
3. Investments: It is the third item to be shown under the heading 'Assests'. Investment in Government securities, other approved securities, shares, debentures and bonds, gold etc. are shown under this item. The details are given under Schedule 8.
4. Advances: It is the fourth item to be shown under the heading 'Assests'. Bills purchased and discounted, cash credit, overdraft and loans payable on demand; and term loans are shown under this item. The details are shown under Schedule 9.
5. Fixed Assests: It is the fifth item to be shown under the heading 'Assests'. Premises, furniture and fixtures etc. are shown under this item. The details are shown in Schedule 10.
6. Other Assests: It is the last item to be shown under the heading 'Assests'. Inter-office adjustments, interest accrued, tax paid in advance, stationery and stamps, silver in stock. non banking assets acquired in satisfaction of claims are shown under this item. The details are shown under Schedule 11.

Contingent Liabilities

A contingent liability is one which is not an liability but which will become an actual one on the happening of some event which is uncertain.

Contingent liabilities have two characteristics: (i) uncertainty as to whether amount will be payable at all and (ii) uncertainty about the amount involved. It is sufficient for the amount of contingent liability to be stated on the face of the Balance Sheet by way of a foot note. It need not be extended to the amount column on the liability side.

Claims against the bank not acknowledged as debt, liability for partly paid investments, liability on account of outstanding forward exchange contracts etc. come under contingent liabilities in bank. The details of can contingent liabilities are shown in Schedule 12.

Profit and Loss Account

Profit and Loss Account of a banking company is also prepared in vertical form. ‘Form B’ of the Third Schedule of the Banking Regulation Act 1949 is used for preparing Profit and Loss Account. It is divided into four sections:

• Income: The first item of this section is interest earned. Interest/discount on advances/ bills, income on investments, interest on balances with RBI and other inter-bank funds etc. are shown under this item. The details are shown in Schedule 13. It should be noted that according to new form, bad debts and provision for bad debts and other provisions are not deducted from interest earned. These items are shown separately in the Profit and Loss Account.

The second item of this section is other income, Commission, exchange and brokerage, profit on sale or investments, profit on revaluation of investments, profit on sale of land, building and other assets, profit on exchange transactions, income earned by way of dividend from subsidiaries etc. are shown under this item. The details are shown in Schedule 14.

• Expenditure: It is divided into three sections-

• Interest Expended: It includes interest paid on deposits, interest on borrowings from RBI, interest on inter-bank borrowings etc. The detail is given under Schedule 15.

• Operating Expenses: It include salaries and wages of staff, rent rates and taxes, printing and stationery, advertisements, depreciation on bank’s properties, directors fees, auditors fees, law charges, postage, repairs, insurance etc. The details are given in Schedule 16.

• Provision and Contingencies: It include provision for bad debts, provision for taxation and other provisions.

• Profit/Loss: Under this, profit/loss for the current year (difference between income and expenditure of the current year) and the profit/loss brought forward are shown.

• Appropriations: All appropriations from profits such transfer to Statutory Reserve, transfer to other reserves, proposed dividend etc. are shown. The balance is transferred to Balance Sheet.