Module D
Final Accounts covering Bank
Final Accounts
Equation
• Balance Sheet
Rs. Lakhs
Capital & Liabilities
Assets
Capital
30
Fixed Assets
20
Reserves 10
Investments
05
Capital Employed40
Current Assets
Term Liab
10
Cash 5
Current Liab. 15
Bank 5
Debtors 20
_____
Stock 10
40
65
65
Equation
Or Assets = Liabilities +Capital or
Liabilities= Assets- Capital or
Capital= Assets- Liabilities
• Capital =Rs.65 lakhs-Rs.25 lakhs(TL +CL)
So we get capital deployed of Rs.40 lakhs
Final Accounts
•
•
•
•
•
•
Current assets are those which are:
kept temporarily for resale
for converting into cash
they are cash or cash equivalent
are to be realized within a period of one year
are to be realized during the normal operating
cycle
Final Accounts
• Some common adjustments are:
• Closing Stock
• Expenses due but not paid (Outstanding
expenses)
• Expenses paid in advance (Prepaid expenses)
• Incomes due but not received (Accrued
incomes)
• Incomes not due but received (Unearned
incomes)
• Depreciation on assets
• Interest on Capital
Final Accounts
• : Closing consolidated journal entries are
normally passed for
• Transfer of all manufacturing and purchase
expense to the debit side of trading a/c
• Transfer of Purchases and Sales return to the
debit side of Trading a/c
• Transfer of Sales and Purchases return to the
credit side of Trading a/c
• Transfer of closing stock to the credit of
trading account by an adjustment entry
Equation & closing entries
• Transfer of Gross profit to the credit side of Profit &
Loss a/c for the year ended 31-12-2009.
Trading Account
• To Opening Stock 15000 By Sales
65000
To Purchases
30000 By Cl.Stock
20000
To Wages 11000+
O/s forMar 1000
12000
To Carriage Inward 3000
To Gross Profit
25000
85000
85000
• Transfer of Gross loss to the debit side of Profit &
Loss a/c
Profit & Loss Account for the
Period ended 31/3/09.
To Salaries
12000
To Rent
600
To Admin. Exp.
400
To InsuranceRs.3000
LessPrepaid 1000 2000
• To Dep.
1000
To Net Profit Trd To
Capital Account
11000
30000
By Gross Profit 25000
By Commission 4000
By Misc. Income1000
30000
Balance Sheet
• Capital A/c
Fixed Assets10000
Op. Bal 42000+
-Dep 1000
33000
Profit 11000
Current Assets
-Drawing 8000 45000
Cash 1000
Sun Cr.
11000
Bank 1000
Wages O/s
1000
Debtors10000
Stock 20000
23000
57000
Adv: Prepaid Div
1000
Total
57000
•
•
•
•
•
Owners fund includes:
Capital less drawings of the owner
Undistributed profits
Reserves
Assets minus liabilities
True or False
• a. Balance Sheet represents an expansion of the
equation: Assets= Liabilities+ capital
b. Assets- Authorised Capital= Liabilities
c. Rehman has assets of Rs.5000 & Liabilities of Rs.5000
therefore his Capital would be Rs.15000.
d. Assets will be equal to Capital if there are no liabilities of
the business.
E. If a firm borrows a money its capital would be reduced.
F. Samir has assets of Rs.20000 & Liabilities of Rs.10000.
Therefore his Capital is Rs.30000.
• Answer a) True b) False © False d) True e False
• (F) False
• Banking Final Accounts
BANKING ACCOUNTS
• A company that carries on the business of
Banking in India.
• It generally governed by the Provisions of the
Companies Act, 1956.
• It is specifically governed by the Banking
Regulation Act,1949.
BANKING ACCOUNTS
• The Major institutions that are carrying on
business of banking in India are:
• Nationalised Banks
• State Bank of India and their associates
• Foreign Banks having branches in India
• Co-operative Banks
• Rural Banks
• Private Sector Banks
BANKING ACCOUNTS
•
•
•
•
•
•
Bankers’ Books include:
Ledgers
Day Books
Cash Books
Account Books
All other records used in the ordinary business
of a bank
BANKING ACCOUNTS
•
•
•
•
•
•
•
•
•
•
•
Third Schedule: Form ‘A’
Form of Balance Sheet
Balance Sheet as on 31st March,………….
Capital and Liabilities
Rs
Capital
…….
Reserves and Surplus
…….
Deposits
…….
Borrowings
…….
Other Liabilities and Provisions
…….
Total
…….
…….
Schedule
1
2
3
4
5
Non- Banking Assets
• ‘Non-Banking Assets?
• This relates to assets, which are not acquired by the banks for
the purpose of Banking business like lending.
First category of Non- Banking assets are :
• Land & building, furniture for its own use.
• Second category of non Baking assets are assets repossesed
by Bank In case of non-payment of loan amount such
securities are taken in possession for recovery. These assets
were finance by the bank & have turned bad.
• Sec. 17 of BR Act requires 25% from
2007(earlier 20) by way of Reserves and also
provision for Bonus
Sec. 15 prohibits bank to declare dividend
unless first written all capital expenses
BANKING ACCOUNTS
•
•
•
•
•
•
•
•
•
•
Assets
Rs.
Cash and Balance with RBI
…….
Balance with Banks and
Money at call and Short Notice
…….
Investments
…….
Advances
…….
Fixed Assets
…….
Other Assets
…….
Total
Contingent Liabilities
Schedule No.
6
7
8
9
10
11
12
• BANK BALANCE SHEET :
• Sch1 to 12 Balance out of which 1to 5 for
Capital & Liability Side & Sch.6 to 12 for Bank’s
Assets Side.
• Bank’s P & L : Sch.13 to 16.
Sch.1 Capital
• The various items in schedule-1(Capital) in Balance Sheet
(Form A) includes:
• For Nationalised Banks- Capital
• For Banks incorporated outside India- Start up capital as
prescribed by RBI + Amount of deposit kept with RBI under
section 11(2) of BR Act,1949.
• For other Banks- i) Authorised Capital (…shares of Rs….each)
•
ii) Issued Capital
--do•
iii) Subscribed Capital
--do—
•
iv) Called-up Capital
--do—
•
v)Less call unpaid + Add Forfeited Shares
Sch.2
• The various items in schedule-2(Reserve and Surplus) in Balance
Sheet(Form A)
•
includes:
• Statutory Reserves(opening Balance + Additions and Deductions during
the
•
year).
• Capital Reserves ( ---------------- do-------------------------------------------).
• Share Premium ( ---------------- do-------------------------------------------).
• Revenue and other Reserves ( ---------------- do---------------------------).
• Balance in Profit and Loss Account.
• Total(a+b+c+d+e)
Sch. 3
• The various items in schedule-3(Deposits) in Balance
Sheet(Form A) includes:
•
a) (I) Demand Deposits-- ( i )From Banks, ii)
From Others.
•
(II) Savings Bank Deposits
•
(III) Term Deposits – i)From Banks, ii) From
Others
•
(IV) Total (I + II + III)
•
b) (I) Deposits of Branches in India
•
(II) Deposits of Branches Outside India
Sch.4
• The various items in schedule-4(Borrowings) in
Balance Sheet (Form A) includes:
• Borrowings in India (reserve Bank of India +Other
Banks +Other Institutions
•
and agencies)
• Borrowings outside India
• Total(a + b)
• Secured Borrowings in a & b above
Sch.5
• The various items in schedule-5(other
Liabilities and Provisions) in Balance
•
Sheet (Form A) includes:
• Bills Payable
• Inter-office Adjustments (net)
• Interest Accrued
• Others (including Provisions)
Sch. 6Cash & Bal. with RBI
Form A includes:
• Cash in Hand (including foreign currency notes)
• Balances with RBI in(Current Account, other Accounts)
• Total(a + b) . Cash and Balance with the Reserve Bank of India
includes:
• Cash in hand including foreign currency notes.
• Balance with RBI in current account and in other accounts.
• It includes cash in hand including foreign currency notes and
also of foreign branches in case of banks having such
branches.
Sch. 7
• The various items in schedule-7(Balance with Banks & Money at call and
short
•
notice) in Balance Sheet(Form A) includes:
• In India:
• i) Balance with banks (in Current Accounts + in Other Deposit Accounts)
• ii) Money at Call and Short Notice (With Banks + With other Institutions)
•
Total( i + ii )
• Outside India:
• i) In Current Accounts
• ii) In other Deposit Accounts
•
iii) Money at Call and Short Notice
•
Total (i + ii + iii)
• Grand Total (a + b)
• Balances with other Banks and Money at Call and Short Notice includes:
• Balances with Banks in India including co-operative Banks, in current
accounts and in other Deposit accounts shown separately.
• Money at call and short notice with banks and other institutions. It
represents loans given by one bank to other for a short period. Call loans
are repayable at any time the banker recalls while short notice advances
are repayable within short notice say, 24 hours to maximum period of two
weeks. It also includes deposits repayable within 15 days notice lent in the
inter-bank call money market.
• Balances in current accounts and deposit accounts outside India which
includes balances held by foreign branches and branches of Indian Banks
outside India.
• Money at call and short notice in foreign countries.
Sch. 8
• The various items in schedule-8(Investments) in
Balance Sheet(Form A) includes:
• Investments in India in:
• i) Govt. Securities
• ii) Other Approved Securities
•
iii) Shares
• iv) Debentures and Bonds
•
v) Subsidiaries and/or Joint Ventures
• vi) Others (to be specified
Sch. 8
•
•
•
•
•
•
Investments Outside India in:
i) Govt.Securities (including Local
Authorities)
ii) Subsidiaries and/or Joint Ventures abroad
iii) Other Investment (to be specified)
Total:
Grand Total (a and b)
• Investment in India includes:
• Central and State Govt. securities and govt. treasury bills
shown at the book value. Difference between the book value
and market value should be mentioned in notes.
• Other than govt. securities which are treated as approved
securities as per BR Act,1949.
• Investments in shares, debentures and bonds of companies
and corporations not included above.
• Investments in Subsidiaries/Joint Ventures (including RRBs)
• Residual investments if any, like Gold, commercial paper and
instruments in the nature of share/debentures/bonds.
• Investment outside India includes:
• All foreign government securities including
securities issued by local
•
authorities.
• Investments made in the share capital of
subsidiaries floated outside India
•
and/or joint ventures abroad.
• All other investments made outside India.
Sch. 9
• . The various items in schedule-9(Advances) in Balance
Sheet(Form A) includes:
• i) Bill Discounted and Purchased
• ii) Cash Credits, Overdrafts and Loans Payable on Demand
• iii) Term Loans
• Total:
• i) Secured by Tangible Assets
• ii) Covered by Bank/Govt. Guarantees
• iii) Unsecured
•
Total:
Sch. 9 continued
• I. Advances in India:
•
i) Priority Sectors
•
ii) Public Sector
•
iii) Banks
•
iv) Others
•
Total:
• II. Advances Outside India:
•
i) Due from Banks
•
ii) Due from Others( Bills Purchased and Discounted, Syndicated Loans,
•
Others)
•
Total:
• Grand Total( I and II )
• ‘Advances’?
• includes Loans, Cash Credit and Overdraft
• Loan is an advance which has fixed amount and fixed period.
• Cash Credit is an arrangement where banks agree to lend
money to borrowers up to a fixed limit against Hypothecation
or Pledge of securities. However the borrower need not avail
the whole amount in one go.
• Overdraft is an arrangement where customer is permitted to
overdraw money in his current account up to a certain limit
against securities like, L.I.C. Policy, FDRs, National Saving
Certificates, Quoted shares etc.
Sch. 10 Fixed Assets
• The various items in schedule-10(Fixed Assets) in Balance Sheet(Form A)
includes:
• Premises :
•
At cost as on 31st March of the preceding year
•
Additions during the year
•
Deductions during the year
•
Depreciation to date
• Other Fixed Assets(Including Furniture and Fixture)
• At cost on 31st March of the preceding year
• Additions during the year
• Deductions during the year
• Depreciation to date
• Total (a + b)
Sch. 11 Other Items
• . The various items in schedule-11(Other Assets) in Balance
Sheet(Form A)
•
includes:
• Inter-Office Adjustments
• Interest Accrued
• Tax Paid in Advance/Tax Deducted at source
• Stationery and Stamps
• Non-banking Assets acquired in satisfaction of claims
• Others (any unadjusted balance of loss, when the loss exceeds
the aggregate of capital, Reserves and Surplus)
Sc. 12 Contingent liabilities
• . The various items in schedule-12(Contingent Liabilities) in Balance
Sheet(Form A)
•
includes:
• Claims against the Bank not acknowledged as debts
• Liability for partly paid investments
• Liability on account of Outstanding Forward Exchange Contracts
• Guarantees given on behalf of constituents;
• i) In India
• ii) Outside India
• Acceptances, Endorsements and other Obligations
• Other items for which the Bank is contingently liable
• Total
Sch. 13 P& L
• The various items in Schedule 13 (Interest
Earned) of Profit and Loss Account
•
(Form B) includes:
• Interest/Discount on Advances/Bills
• Income on Investments
• Interest on balances with RBI and other interbank funds
• Others
• Interest Earned (schedule 13) includes:
• Interest/discount on Advances/bills: includes interest and
discount on all types
•
of loans and advances like Cash Credit, demand loans,
overdrafts, export
•
loans, term loans, domestic and foreign bills purchased and
• discounted (including those rediscounted), overdue interest
and also interest
• subsidy, if any, relating to such advances/bills.
• Income on investments: Includes all income derived from the
investment portfolio by way of interest and dividend.
• Interest on Balances with RBI and other inter-bank funds:
includes interest on balances with Reserve Bank and other
banks, call loans, money market placements, etc.
• Others: Includes any other interest/discount income not
included in the above heads.
Sch. 14 other income
• The various items in Schedule 14 (Other Incomes) of Profit and Loss
Account
•
(Form B) includes:
• Commission, Exchange and Brokerage
• Profit on Sale of Investments
• Less: Loss on sale of investments
• Profit on Revaluation of Investments
•
Less: Loss on Revaluation of Investments
• Profit on Sale of Land/Building and other Assets
• Less: Loss on sale of Land, Building & Other assets
• Profit on Exchange Transactions
• Less: Loss on Exchange Transactions
• Income earned by way of dividends, etc., from subsidiaries, companies
and/or joint ventures abroad/in India
• Misc. Income
• Other Incomes (schedule 14) includes:8
• Commission, Exchange and Brokerage: includes all
remuneration on services such as commission on collection,
commission/exchange on remittances and
•
transfers, commission on letters of credit, letting out of
lockers, guarantees,
•
commission on Govt. business, commission on the other
permitted agency
•
business including consultancy and other services,
brokerage etc., on securities excluding foreign exchange
income.
• Profit on sale of investments less loss on sale of investments.
• Profit on revaluation of investments less loss on revaluation of
investments.
Sch. 15 Interest Expended
• The various items in Schedule 15 (Interest
Expended) of Profit and Loss Account
•
(Form B) includes:
• Interest on deposits
• Interest on RBI/Inter-Bank Borrowings
• Others
Sch. 16
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The various items in Schedule 16 (Operating Expenses) of Profit and Loss
Account
(Form B) includes:
Payments to and Provisions for Employees
Rent, Taxes and Lighting
Printing and Stationery
Advertisement and Publicity
Depreciation on Bank’s property
Director’s fees, Allowances and Expenses
Auditor’s fees and expenses (Including Branch Auditors)
Law Charges
Postages, Telegrams, Telephones etc.
Repairs and Maintenance
Insurance
Other Expenditure
Sch.16
• Operating Expenses (schedule 16) includes:
• Payments to and provisions for employees: Includes staff
salaries/wages, allowances, bonus, other staff benefits like
provident fund, pension, gratuity, leave fare concessions, staff
welfare medical allowance to staff.
• Rent, Taxes and lighting: Includes rent paid by the banks on
buildings and other municipal and other taxes paid excluding
income tax and interest tax, electricity and other similar
charges and levies. House rent allowance and other similar
payments to staff should appear under the head “Payment to
and provisions for employees”.
Sch.16
• Printing and stationery: Includes books and forms of
stationery used by the bank and other printing charges which
are not incurred by way of publicity expenditure.
• Advertisement and publicity: Includes expenditure incurred
by the bank for advertisement and publicity purposes
including printing charges of publicity matter.
• Depreciation on bank’s property: Includes depreciation on
bank’s own property, motor cars and other vehicles, furniture,
electric fittings, vaults, lifts, leasehold properties, non-banking
assets etc.
Sch. 16
• Directors’ fees, allowances and expenses: Includes sitting fees and all
other items of expenditure incurred on behalf of directors. The daily
allowance, hotel charges, conveyance charges etc., which though in the
nature of reimbursement of expenses incurred may be included under this
head. Similar expenses of local committee members may be included
under this head.
• Auditors’ fees and expenses (Including branch auditors’ fees and
expenses): Includes the fees paid to the statutory auditors and branch
auditors for professional services rendered and all expenses for
performing their duties, even though they may be in the nature of
reimbursement of expenses. If external auditors have been appointed by
bank themselves for internal inspection and audits and other services, the
expenses incurred in that context including fees may not be included
under this head but shown under ‘Other expenditure’.
• Law charges: includes all legal expenses and reimbursement of expenses
incurred in connection with legal services.
Sch.16
• Postage, telegrams, telephones etc.: Includes all postage
charges like stamps, telegram, telephones, teleprinters etc.
• Repairs and Maintenance: Includes repairs to bank’s property,
their maintenance charges.
• Insurance: Includes insurance charges on bank’s property,
insurance premium paid to DICGC etc., to the extent they are
not recovered from the concerned parties.
• Other expenditures; Includes all expenses other than those
not included in any of the other heads like, license fees,
donations, subscriptions to papers, periodicals, entertainment
expenses, travel expenses, etc. In case any particular item
under this head exceeds one percentage of the total income,
particulars may be given in the notes.
•
•
•
•
The Provisions and Contingencies include:
Provisions made for bad and doubtful debts
Provisions for taxation
Provision for diminution in the value of
investments
• Transfers to contingencies
Money at Call & ShortNotice
• ‘Money At Call and Short Notice’?
• It relates to inter-bank transactions. One Bank
may approach another Bank to avoid adverse
clearing which may be for a day or Friday then
for two to three days.
• Banks having short supply of money borrow
from banks having surplus money.
• Money is borrowed usually for 1 to 14 days.
• The rate of interest fluctuates everyday and
even within a day.
‘Bills receivable being Bills for collection as per contra’?
• It is a contra item in the Balance Sheet.
• ‘Bills received being bills for collection ‘ account
denotes the amounts receivable and is shown on
assets side of the balance sheet.
• ‘Bills for collection being Bills receivable’ account
denotes the amount payable to the customer and is
shown in the liabilities side of the balance sheet.
•
•
•
•
•
•
•
Acceptance Endorsements and other Obligations’?
It represents liabilities, which the bank assumes on behalf of
its customers.
The various ways in which a bank may accommodate its
customers are, opening of L/C, accepting bills on behalf of
customers, making endorsements on Promissory Note
prepared by customers, issuing Letter of Guarantee.
The bank obtains counter Guarantee from its customers to
meet the third party liabilities.
It creates contra item in balance sheet.
The account ‘Constituents’ liability for acceptances,
endorsements or other obligations’ appears in the asset side
of the balance sheet.
The account ‘ Acceptances, Endorsements and other
Obligations’
Prepare the Profit and Loss account of Andhra Bank for the year ended 31st
March, 2003, from the following:
Interest on Fixed Deposits
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Rebate on Bills discounted
Interest on Loans
Commission Charged to Customers
Establishment
Discount on Bills Discounted
Interest on Cash Credit
Unexpired Disc. Agst bills disc
Directors’ Fees
Audit Fees
Postage and Telegram
Printing and Stationery
Rent and Taxes
Interest on Overdrafts
Sundry Charges
Interest on Savings Bank Deposits
298000
165000
280000
7000
60000
89,000
24,0000
55000
10,000
5000
2,000
3,000
22000
60000
2000
72000
Andhra Bank Ltd. P & L Account for the YE
31/3/03
•
•
•
•
•
•
•
•
•
•
•
•
Schedule No. Rs
I.
II.
III.
Income
Interest Earned
13
Other Income
14
Total
Expenditure
Interest Expended
15
Operating Expenses 16
Provision for Contingencies
Total
Profit
Net Profit for the year
690000
7000
697000
370000
94000
30000
494000
203000
Sche. 13Interest Earned
• Schedules to be annexed with Profit and Loss Account
• Schedule13: Interest Earned
• Interest on:
Loan
280000
• Cash Credit
24,0000
•
Overdrafts
260000
580000
• Discount on Bills discounted165000
• Less: Rebate on Bill Discounted55000
110000
•
690000
Sc.14 &15
• Schedule 14: Other Income
• Commission charged to customer
7000
• Schedule 15: Interest Expended
• Interest paid on
•
Fixed Deposits
298000
•
Savings Bank Deposits 72000
•
415000
•
•
•
•
•
•
•
•
Schedule 16: Operating Expenses
Establishment Expenses 60000
Director’s Fees
Audit Fees
5000
Rent and Taxes
22,000
Postage and Telegrams
2,000
Printing and Stationery
3,000
Sundry Expenses
2,000
Partnership
Partnership
• Sec. 4 of Indian Partnership Act,1932 defines partnership as relationship
between the persons who have agreed to share the profits of a business
carried on by all or any one of them acting for all.
• Partnership Agreement inter alia contains partnership business,
commencement of business , the Firm name & ,Commencement &
duration, Capital contribution, RoI on loans etc Salary Other terms.
CAPITAL ACCOUNTS: METHODS :
• Fixed Capital: Here as stipulated amount of capital will be shown as Capital
while Salary, Drawing, Interest entries are routed through Current
Accounts.
•
•
•
•
•
•
•
•
The important features of partnership are
It is a relationship between persons
There should be minimum two persons to form a partnership
It is the result of an agreement
The partnership agreement may be written or oral
The agreement is to share the profits of the business.
There must be a lawful business
The business must be carried on by any one of them acting for
all or by more than one, or by all of the partners
• Any variations in the mutual rights and duties of partners
• Method by which goodwill is to be calculated on the
admission, retirement or death of a partner
• Procedure by which a partner may be admitted or retired,
and the method of payment of dues
• Basis of the determination of the executors if any one of them
is deceased and the method of payment
• Treatment of losses arising out of the insolvency of a partner.
Whether Garner vs. Murray rule will be applicable to them or
not.
• Procedure to be followed for settlement of disputes among
partners
• Preparation of accounts and their audit.
Fixed & Fluctuating Capital methods
• Here entries for Salary, Interest are routed through one
account hence the amount in capital account may fluctuate.
For eg. Prakash & Surya have position as under Capitals:
Prakash
Surya
Fixed Capital
40000
60000
Salary
36000
48000
Drawings
32000
40000
Share in Profit
12000
16000
• Current A/cs
10000
15000
• Show Fixed Capital & Fluctuating Capital Accounts
incorporating the above transactions .
Fixed Capital Method
•
Prakash
31/3 To Bal C/d
40000
1/4 By Bal B/d
40000
Surya
31/3 To Bal C/d
31/3 To Drawings
31/3 To Bal C/d
60000
1/4 By Bal B/d
Current A/c: Prakash
32000
1 /4 By Bal B/d
26000
31/3 By Salary
--------- 31/3 By Sh. Of Profit
58000
60000
10000
36000
12000
58000
Fixed Capital Method
•
31/3 To Drawings
31/3 To Bal C/d
Current A/c: Surya
40000 1 /4 By Bal B/d
39000 31/3 By Salary
______31/3 By Sh. Of Profit
79000
15000
48000
16000
79000
Fluctuating Capital Method
• Now Under Fluctuating Capital There being no separate Current A/c One
single Account for each partner will appear as:
SURYA’s CAPITAL A/C
• 31/3 To Drawings
40000 1 /4 By Bal B/d
75000
31/3 To Bal C/d
99000 31/3 By Salary
48000
______31/3 By Sh. Of Profit
16000
139000
139000
• Current A/c: Prakash
31/3 To Drawings 32000
1 /4 By Bal B/d
31/3 To Bal C/d
66000
31/3 By Salary
--------- 31/3 By Sh. Of Profit
98000
50000
36000
12000
98000
Valuation of goodwill
• 1. Average profit method :
• Goodwill at 5 Years’ of last 3 years average profits:
20000+40000+ 60000 = 40000 average profit
•
3
• 40000*5 years = Rs.200000 goodwill.
2. Superprofit Method : From Capital employed Rs. 100000
we assume return at 10% i.e. normal profit
Actual profit Rs.36000- Rs.10000- Rs.26000 Super Profit
at 5 years’ purchase Rs.26000*5= Rs.130000
• Capitalisation : Normal Profit*100
normal rate
• Say normal Profit is Rs.30000, normal rate is 10%
• Value of business= 30000*100 i.e. Rs.3,00,000
10
• Actual Capital say Rs. 1,00,000.
Goodwill = 300000-Rs.1,00000= Rs.200000
Admission of new Partner &
treatment for goodwill
• 1. When privately paid : No entry
2. When brought it is shared by existing partners in their
profit sharing ratio.
• By Cash/ Bank A/c Dr.
•
To Goodwill A/c
Goodwill A/c
To A’s Capital A/c
To B’s Capital A/c
• 3. No goodwill is brought in but is raised & Shown inB/S as an
assets. Goodwill A/c
To A’s Capital
To B’s Capital
• No goodwill is brought in but is raised &
written off : Goodwill A/c
To A’s Capital
To B’s Capital
By A’s Capital
By B’s Capital
To Goodwill A/c.
Goodwill on retirement
• A,B & C are equal partners. C retires when
goodwill is valued at Rs.90000. C’s Share
Rs.30000.
• Goodwill A/c Dr. 30000
To C’s Capital A/c
30000
A’s Capital A/c 15000
B’s Capital A/c 15000
To Goodwill A/c
30000
•
•
•
•
•
•
•
•
•
•
Goodwill is normally due to:
Favourable Location
Nature of business
Licences and quotas with the business
Possibility of competition
Better customer service
Efficient advertisement
Possession of patent rights and trade marks
Efficiency and Personal skill/ reputation of the management
Better products
On death of a partner
• On the death of a partner the executors or representatives of the
deceased partner are entitled to the following benefits:
• The amount standing to the credit of deceased partners’ capital a/c
• His share in the goodwill of the firm
• His share of profits earned from the beginning of the year to the date of
death
• His share of profits on revaluation of assets and liabilities. His share of the
loss, if any, shall be deducted
• His share of undistributed profit or reserves
• Interest on capital, salary or commission, etc. if provided in partnership
deed.
• His share of the proceeds of the joint life policy.
Event of DEATH
• If the death takes place in the DURING THE accounting
period, the deceased partner is entitled to his share in
profit or loss upto the date of his death. The amount can
be determined by
• (i) preparing final accounts up to the date of death, or
• (ii) an estimated share in profit or loss is determined on
the basis of
•
(a) Preceding year
•
(b) on the basis of sales up to the date of death and
calculating profit on the basis of
•
the percentage of profit earned in the previous
year
•
(c) on the basis of the time
•
(d) on the basis of the average of the two
True or False.
1. Partnership is a Separate Legal entity.
2. There should be at least two persons to form a Partnership.
3.In partnership profits of the partnership have to be shared
by all , though loss may be borne by few partners only.
4. According to Indian Partnership Act there is no maximum limit
of partners in Partnership.
5. If partnership is silent on certain points in that case relevant
provisions of Partnership Act will apply.
• Ans: 1. F 2. T 3.T 4. T 5. T
Fill in the blanks
• 1. ____ is the value of established Business & its
reputation.
2.______ means joining of a new partner into
existing partnership.
• 3. _____ means partner brakes off relationship with
all the partners & withdraws from the firm.
4. Under the _____Capital Method all the
transactions are recorded in Capital account only.
5. Under ______ Capital method two accounts are
maintained for each partner. i.e. Current & Capital.
• Ans:1. Goodwill 2. Admission 3. Retirement 4.
Fluctuating & Fixed.
True or False :
• 1.If the partnership does not state any
method of maintaining capital Accounts then
the fixed capital method has to be followed.
• 2. The partners drawings are not debited to
P&L A/c.
(Ans. 1. False 2. True)
True or False
1. If the firm is following fixed Capital method
salary is credited to Partners Current A/c
2. While calculating average profits of
previous year the loss has to be ignored.
3. Goodwill when privately paid does not
appears in the books of account of Partnership
Firm.
Ans : 1. True. 2. False 3. True
COMPANY Accounts
Company
• A Private Company is one which Restricts the transfer
of shares. Limits no. of members to 50 & Prohibits
invitation to public.
Public Company (Sec. 3(i) (iv) of Indian Companies
Act, 1956) is one which is not a Private Company.
Govt. Co. where Govt (Central or State) holds not
less than 51% of its paid up capital.
• Holding Co, holds 51% capital in Subsdiary co.
Co. may have both Preference Share Capital Or Equity
Share Capital or both
• Pref. Shares may be cumulative (Dividend is
accumulated) Redeemable (after a period)
or Participating( in profits in excess of those
available to equity shareholders.
Another Classification
• 1. Authorised 2. Issued 3. Subscribed 4.
Called up & 5. Paid up.
True or false
• 1. Paid up capital may exceed authorised
capital
• 2. Participating pref. shares have right to
participate in profits after paying dividend to
eu. Shareholders.
• 3. Equity Shareholders have to first paid
dividend before paying/declaring dividend to
Eq. Shareholders
COMPANY Accounts
•
The Assets side of the balance sheet shows the
following sequence:
Fixed Assets
Investments
Current assets, Loans and Advances
•
•
•
–
–
•
•
Current Assets
Loans & Advances
Miscellaneous Expenditure
Profit & Loss account (Debit balance, if any)
COMPANY Accounts
• With regard to Share Capital, the company should specifically
state:
• Details of Authorised, Issued, Subscribed, Called up and Paid
up capitals
• Details of number of shares and face value of each share
• Amount called up on each share
• Classes of shares-Preference or Equity with or without voting
rights
• Shares allotted as fully paid for consideration other than cash
• Shares issued as bonus shares and source
COMPANY Accounts
•
•
•
•
•
•
•
•
•
RESERVES AND SURPLUS
Capital Reserve
Capital redemption Reserve
Share Premium Account
Other reserves
Less: Debit balance in P & L A/c, if any
Surplus (Balance in the P & L appropriation A/c)
Proposed additions to reserves
Sinking funds
COMPANY Accounts
•
•
•
•
•
SECURED LOANS
Debentures
Loans and advances from banks
Loans and advances from Subsidiaries
Other Loans and advances
COMPANY Accounts
•
•
•
•
UNSECURED LOANS
Fixed deposits
Loans and advances from subsidiaries
Short term loans & Advances
– from Banks
– From Others
•
•
•
4. Other loans and advances
(a.)from Banks
(b) From Others
COMPANY Accounts
•
•
•
•
•
•
INVESTMENTS
Investments in Government or trust securities
Investment in shares, Debentures or bonds
Investment in immovable properties
Investment in the capital of partnership firms
Balance of un-utilised monies raised by issues
COMPANY Accounts
•
•
•
•
•
•
•
•
•
CURRENT LIABILITIES & PROVISIONS
(A) Current Liabilities
Acceptances
Sundry Creditors
Subsidiary companies
Advance payment and unexpired discounts
Unclaimed dividends
Other liabilities (if any)
Interest accrued but not due on loans
COMPANY Accounts
•
FIXED ASSETS
–
–
–
–
–
–
–
–
–
–
–
Goodwill
Land
Buildings
Leaseholds
Railway sidings
Plant & Machinery
Furniture & fittings
Development of property
Patents, trade marks & designs
Live stock
Vehicles, etc.
COMPANY Accounts
•
•
•
The fixed assets must be
Classified and distinguished
The following details are required to be
shown separately:
–
–
–
–
original cost,
additions during the year,
deductions there from during the year,
Total depreciation written off or provided up to
the end of the year
COMPANY Accounts
• : The followings must be clearly stated with
regard to Investments:
• Nature of Investments
• Mode of valuation (Cost or market value)
• Classification of Investments
COMPANY Accounts
•
•
•
•
•
•
•
•
•
CURRENT ASSETS LOANS & ADVANCES
Current Assets
Interest accrued on investments
Stores and spare parts
Loose tools
Stock in trade
Sundry Debtors
Cash in hand
Bank balances
– With scheduled banks
– With others
COMPANY Accounts
• In respect of Sundry Debtors following details
are to be shown:
• Debts considered good and in respect of
which the company is fully secured
• Debts considered good for which the company
holds no security other than personal security
of debtors
• Debts considered doubtful or bad
COMPANY Accounts
•
•
•
•
Loans & Advances
Advances and loans
Bills of Exchange
Advances receivable in cash or kind or for
value to be received
• Balances on current accounts
• Balances with Customs, Port trust, etc. (where
payable on demand)
COMPANY Accounts
• Miscellaneous expenditure is shown in the following
sequence on the assets side of the balance sheet:
• Preliminary expenses
• Expenses including commission or brokerage on underwriting
or subscription of shares or debentures
• Discount allowed on issue of shares or debentures
• Interest paid out of capital during construction
• Development expenditure not adjusted
• Other items
COMPANY Accounts
•
The Assets side of the balance sheet shows the
following sequence:
Fixed Assets
Investments
Current assets, Loans and Advances
•
•
•
–
–
•
•
Current Assets
Loans & Advances
Miscellaneous Expenditure
Profit & Loss account (Debit balance, if any)
COMPANY Accounts
• With regard to Share Capital, the company should specifically
state:
• Details of Authorised, Issued, Subscribed, Called up and Paid
up capitals
• Details of number of shares and face value of each share
• Amount called up on each share
• Classes of shares-Preference or Equity with or without voting
rights
• Shares allotted as fully paid for consideration other than cash
• Shares issued as bonus shares and source
COMPANY Accounts
•
•
•
•
•
•
•
•
•
RESERVES AND SURPLUS
Capital Reserve
Capital redemption Reserve
Share Premium Account
Other reserves
Less: Debit balance in P & L A/c, if any
Surplus (Balance in the P & L appropriation A/c)
Proposed additions to reserves
Sinking funds
Bonus Shares :
• Bonus Shares are generally issued by Debiting
GENERAL RESERVES (which appear under
head: Reserves & Surplus) by Crediting Equity
Share Capital (under the head Share Capital).
COMPANY Accounts
•
•
•
•
Loans & Advances
Advances and loans
Bills of Exchange
Advances receivable in cash or kind or for
value to be received
• Balances on current accounts
• Balances with Customs, Port trust, etc. (where
payable on demand)
COMPANY Accounts
• Miscellaneous expenditure is shown in the following
sequence on the assets side of the balance sheet:
• Preliminary expenses
• Expenses including commission or brokerage on underwriting
or subscription of shares or debentures
• Discount allowed on issue of shares or debentures
• Interest paid out of capital during construction
• Development expenditure not adjusted
• Other items
Co. A/cs. Fill in the blanks
• 1. Final Accounts of a Company consist of
______ & ________.
• 2. _______need not be prepared separately &
can be included in _______.
• 3. __________ Prescribes the form of Balance
Sheet
• 1. P& L, B/s, 2. Trading. ,P &L
• 3Sch.IV
Study
• Illustration on page no:483 on Forfeiture of
Shares
on Page 486 Rahul Limited for entries to be
passed on issue of Bonus Shares.
Answers: Match
• Match the following :
1. Fixed Assets
a. Partly paid up
shares held as investment
2. Current Liability
b. Debentures
3. Secured Loans
c. Deposits from
Public
4. Unsecured Loans
d. Goodwill
5. Contingent Liability e. Sundry Creditors.
• 1.Fixed Asset; Goodwiil
• 2. CL: Sundry Creditors
3. Secured Loans : Debentures
4. Unsec : Deposits from public
5. Partly paid shares : Cont. Liab
• Classify under correct head the following items :
(a) Proposed Dividend (b) Unclaimed
Dividend © Prov. For Taxation
d) Share Premium ( e) Forfeited Shares A/c (f)
Credit Bal. in P & L A/c.
• Ans : a. Provisions b. Current Liability
C. Provisions
d. Reserves & Surplus.
e. Share Capital
f. Reserves & Surplus
Find out Heading under B/s.
• : 1. WIP,
2. Government Bonds,
3. Goodwill
4. Prepaid insurance
5. Disc. On Issue of Shares
• Ans : 1. Current Assets 2. Investments
3. Fixed Assets 4. Loans & Advances
5. Misc. Expenditure
TRUE OR FALSE
• 1. Paid up capital may exceed authorised
capital
• 2. Participating pref. shares have right to
participate in profits after paying dividend to
equity Shareholders.
• 3. Pref. Shareholders have to first paid
dividend before paying/declaring dividend to
Equity Shareholders.
• 4. Forfeited Shares can be issued either at
discount or at premium.
• (1) False
(2) True (3) False (4) True.
• Please refer EXCEL File separately attached
giving example of Prakash Limited appearing
• Appearing on page 520 of your book.