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Module 2

Uploaded by

deepavg224
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CORPORATE ACCOUNTING II

MODULE II
ACCOUNTS OF BANKING COMPANIES
2 MARK QUESTIONS
1. Define Banking.
Banking companies in India are governed by the Banking Regulation Act,
1949. Section 5 (b) of this act defines banking as “accepting deposits for
the purpose of lending or investment of deposits of money from the
public, repayable on demand or otherwise, and withdrawable by check,
draft, order or otherwise.”
2. What is slip system of posting?
It is a method of rapid posting in books maintained under Double Entry
principle. Under this system posting is done from slips and not from journals
or cash books. Slips are loose leaves of journals and these are supplied either
by the customers or by the bank staff.
3. What is Non-banking assets?
Non-banking assets are the assets acquired in satisfaction of claims.
4. What is Rebate on bills discounted?
This refers to unexpired discount on bills discounted. The amount of
discount proportionate to the period that falls in the year subsequent to the
year in which the bills are discounted should therefore be considered
unexpired (unearned) discount of the year.
5. What is Statutory Reserve?
Statutory Reserve is a reserve compulsorily kept every year out of current
year profit as per section 17 of the Banking Regulation Act, 1949. Every
banking company incorporated in India shall create a reserve fund and
transfer top it at least 25% of its annual profit as disclosed and loss account
prepared under section 29 and before any dividend is declared.
6. What is CRR?
In order to ensure liquidity and at the same time to provide an opportunity to
earn profit, banks are required to maintain a certain percentage of their total
deposits with the central bank. It is called ‘cash reserve’ and it is a powerful
tool used by the central bank to exercise its monetary policy. According to
sec. 18, every non-scheduled bank is required to maintain a daily cash
reserve balance to the extent of 3% of its total deposits. The balance are
normally maintained in the current accounts with RBI.
7. What is SLR?
The Banking Regulation Act requires that the banks should maintain in cash,
gold and unencumbered approved securities, a fixed percentage of its
demand and time liabilities in addition to the cash reserve requirement. Such
a reserve is known as SLR.
8. What do you mean by NPA?
A Non-performing assets is an asset held by the bank from which no income
is received by the bank within a certain period and that remains out of order
for a minimum of 90 days.
9. What is Contingent Liability for banks?
A contingent liability is one which is not an actual liability but which will
become an actual one on the happening of some event which is uncertain.
Examples of Contingent liabilities are:
(a) Claims against the bank not acknowledged as debt.
(b) Liability for partly paid investments.
(c) Liability on account of outstanding forward exchange contracts etc.
(d) Guarantees given on behalf of customers.
10. What is Standard Assets?
A standard asset is one which does not disclose any problem and which does
not carry more than normal risk attached to the business.
11.What is sub-standard Asset?
A sub-standard asset is one which has remained as NPA for a period less
than or equal to 12 months.
5 MARK QUESTIONS
1. What is slip system of posting? What are its advantages?
It is a method of rapid posting in books maintained under Double Entry
principle. Under this system posting is done from slips and not from journals
or cash books. Slips are loose leaves of journals and these are supplied either
by the customers or by the bank staff. The following are the advantages of
slip system of posting.
(a) Updated Accounts
The bank has to ensure that customers’ (Depositors) ledger accounts are up-
to- date, so that when a cheque is presented to the bank for payment, the
bank can immediately decide whether to honour or dishonor the cheque.
Thus, transactions in the bank are immediately recorded.
(b) Division of Work
As the number of transactions in bank is very larger, the slip system permits
the distribution of work of posting simultaneously among many persons of
the bank staff.
(c) Smooth flow of work
The accounting work moves smoothly without any interruption. As these
slips are filled by the customers, there is much saving of time and labour of
the employees of the bank.
(d) Reduction of the possibility of errors and frauds
As the preparation of daily Trial Balance is facilitated, errors and frauds can
be detected then and there.
(e) Facilitate Internal Check
Internal check system is facilitated as the work done by one clerk is
automatically checked by another clerk as it permits distribution of work of
posting simultaneously among many persons of the bank staff.

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