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Module 2corporate Accounting2

The document discusses various topics related to accounting practices of banking companies including: 1) Statutory Liquidity Ratio (SLR) which requires banks to maintain 25% of total demand and time liabilities in approved securities like government bonds. 2) Unexpired discount which represents discount received on bills that will mature after the accounting year end. 3) Capital adequacy ratio measures a bank's capital relative to its risk weighted assets and should be maintained at 9% minimum. 4) Books maintained by banks include cash books, general ledgers, loan ledgers, bills discounted ledgers, and various memorandum books and registers.

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35 views4 pages

Module 2corporate Accounting2

The document discusses various topics related to accounting practices of banking companies including: 1) Statutory Liquidity Ratio (SLR) which requires banks to maintain 25% of total demand and time liabilities in approved securities like government bonds. 2) Unexpired discount which represents discount received on bills that will mature after the accounting year end. 3) Capital adequacy ratio measures a bank's capital relative to its risk weighted assets and should be maintained at 9% minimum. 4) Books maintained by banks include cash books, general ledgers, loan ledgers, bills discounted ledgers, and various memorandum books and registers.

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anakhaanu69
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We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 4

MODULE 2

ACCOUNTS OF BANKING COMPANIES

PART A

1. What is SLR?
According to section 24 (2 A) of the Banking Regulation Act, every banking company in
India, scheduled or non-scheduled, is required to maintain in India in cash, gold or approved
securities (Government Securities), an amount which is not less than 25% of the total of its
demand and time liabilities in India. This is known as "Statutory Liquidity Ratio". The
Reserve Bank has the power to increase this ratio upto 40%.
2. Define unexpired discount and show journal entry.
"Unexpired discount" or "Discount received but not earned". Bills discounted may have
maturity date falling beyond the current accounting year. The amount of discount relating to
the period falling in the next accounting year is called 'Rebate on Bills Discounted'. In other
words, this is the unearned amount of discount received on those bills that will mature after
the close of the accounting year. The Journal Entry is:
Discount A/c......................... Dr
To Rebate on Bills Discounted
3. Give any four examples of schedule 12 of banking company.
 Claim against the bank not acknowledged as debt.
 Libility on account of partly paid investments.
 Guarantee given on behalf of customers.
 Endorsements and other obligations.
4. Describe the term capital adequacy ratio. How it is calculated.
Capital adequacy ratio is also known as Capital to Risk Assets Ratio. It is the ratio of a bank's
capital to its risk. It is actually a measure of the bank's available capital expressed as a
percentage of its risk-weighted credit exposures. The main idea of this system is to strengthen
the capital base of the banks. At present, the banks are required to maintain capital adequacy
ratio of 9%.
5. Define Banking.
Banking means the accepting, for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.
6. Write a short note on standard assets and sub- standard assets.
Standard Assets are those assets which do not disclose any problem to the bank for
repayment and do not carry more than normal risk attached to the business. Sub-standard
assets are those which have been classified as NPA for a period not exceeding 12 months.

7. Distinguish between cash reserve ratio and statutory liquidity ratio.


Cash Reserve Ratio refers to a certain percentage of total deposits the commercial banks are
required to maintain in the form of cash with the Reserve Bank. It is set according to the
guidelines of the RBI. According to section 24 (2 A) of the Banking Regulation Act, every
banking company in India, scheduled or non-scheduled, is required to maintain in India in
cash, gold or approved securities (Government Securities), an amount which is not less than
25% of the total of its demand and time liabilities in India. This is known as "Statutory
Liquidity Ratio". The Reserve Bank has the power to increase this ratio upto 40%.
8. What do you mean by statutory reserve of Banking Company?
Every banking company incorporated in India is required under Section 17(1) the Act to
create a reserve fund and transfer to it at least 25% of its annual profits disclosed in the Profit
and Loss Account and before any dividend is declared. Such reserve is termed as "Statutory
Reserve".
9. What are Non performing Assets?
An asset becomes non-performing when it ceases to generate income for the bank. This
happens when interest or instalment of principal or both are not received on due dates and the
delay exceeds the stipulated period" Reserve Bank of India has given clear guidelines in
determining when on asset becomes non-performing asset

PART B

10. What is rebate on bill discounted? How it is treated while preparing final accounts?
This is also termed as "Unexpired discount" or "Discount received but not earned". Bills
discounted may have maturity date falling beyond the current accounting year. The amount of
discount relating to the period falling in the next accounting year is called 'Rebate on Bills
Discounted'. In other words, this is the unearned amount of discount received on those bills
that will mature after the close of the accounting year. The Journal Entry is:
Discount A/c......................... Dr

To Rebate on Bills Discounted

 Rebate on Bills Discounted, if given in the adjustments, should be deducted from


discount received and the net amount is shown in the Profit and Loss Account
under Schedule 13.
 Similarly, it is shown on the liability side of the Balance sheet under the head
"Other liabilities" (Schedule 5).Corporate Accounting
 If Rebate on bill is discounted in given in the Trial Balance, then it is show only in
the Balance sheet.
 Rebate on bills discounted at the beginning of the year (opening balance of Rebate
on bills discounted) is added to the discount and Rebate on bills discounted at the
end is deducted to find out the net discount income which will be shown in the
Profit and Loss Account.
11. Which are the books maintained by a Bank?
Book of Accounts
Memorandum Books
Memorandum books do not form a part of double entry system. These are actually
rough books. Some of these are given below:

 Receiving Cashier's Counter Cash Book


 Paying Cashier's Counter Cash Book
 Daily Cash balance 'Cash Book'
Subsidiary Books
Subsidiary Books include the following:

(1) Personal Ledger


The bank maintains separate ledger for the following:

 Current Account Ledger


 Savings Bank Account Ledger
 Fixed Deposit Account Ledger
 Recurring Deposit Account Ledger, etc.

(2) Investment Ledger


All accounts of investments made by the bank are kept in this ledger.

(3) Loan Ledger

Loan ledger contains accounts of each customer to whom loan is granted with full
particulars of every loan.

(4) Bills Discounted and Purchased Ledger

This ledger is intended for maintaining a detailed record of bills purchased from
customers and also details of bills discounted by the customers.

(5) Acceptances, Endorsements and Guarantees Ledger

This ledger is used for recording the details regarding the bills accepted on behalf of
customers and the details of guarantees given by the bank.

Principal Books of Account


Cash Book and General Ledger are the main Books of Account of any bank.

 Books and Registers

1. Bills for Collection Register

2. Dishonoured Cheques Register

3. Safe Deposit Vault Register

4. Demand Draft Register

5. Securities Register

6. Jewellery Register, etc.

12. State the different items shown under other liabilities and provisions in bank balance
sheet.

PART C

13. Give the formats of a bank Balance sheet and profit and loss Account with suitable schedules.
Details are given in the module wise note

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