Financial Statements of Banking Companies – CA Inter Advanced Accounts Question Bank is designed strictly as per the latest syllabus and exam pattern.
Financial Statements of Banking Companies – CA Inter Advanced Accounting Question Bank
Question 1.
The following information is furnished by ALFA Bank Ltd.
| ₹ In Lakhs | |
| Margins held against letter of credit | 200 |
| Recurring accounts deposits | 100 |
| Current accounts deposits | 375 |
| Demand deposit | 125 |
| Unclaimed deposit | 75 |
| Gold deposit | 235 |
| Demand liabilities portion of saving bank deposit | 1325 |
| Time liabilties portion of saving bank deposit | 722 |
Explain CRR ad you are required to calculate the amount of Cash Reserve Ratio (CRR) as per the direction of Reserve Bank of India. (Nov 2019, 5 marks)
Answer:
For smoothly meeting cash payment requirements. banks have to maintain certain minimum ready cash balances at all times. This is called as Cash Reserve Ratio (CRR). Cash reserve can be maintained by way of either a cash reserve with itself or as balance in a current account with the Reserve Bank of India or by way of net balance in current accounts or in one or more of the aforesaid ways.
Question 2.
Answer the following:
(x) A loan outstanding of ₹ 50,00,000 has DICGC cover. The loan guaranteed by DICGC is assigned a risk weight of 50% What is the value of Risk- adjusted asset? (May 2008, 2 marks)
Answer:
Question 3.
A Commercial Bank has the following capital funds and assets. Segregate the capital funds into Tier I and Tier Il capitals. Find out the risk-adjusted asset and risk-weighted assets ratio.
| (₹ in crores) | |
| Equity Share Capital | 500.00 |
| Statutory Reserve | 270.000 |
| Capital Reserve (of which ₹ 16 crores were due to revaluation of assets and the balance due to sale of capital assets) | 78.00 |
Assets:
Cash balance with RBI 10.00
Balance with other banks 18.00
Other investments 36.00
Loans and advances:
(i) Guaranteed by the Government 16.50
(ii) Others 5,675.00
Premises, furniture and fixtures 78.00
Off-Balance Sheet items:
(i) Guarantee and other obligations 800.00
(ii) Acceptances, endorsements and letter of credit 4,800.00 (Nov 2010,8 marks)
Answer:
Risk-Weighted Assets Ratio:
\(\frac{\text { Capital fund } \times 100}{\text { Risk-adjusted assets }} \) = (839.2/11,392.60) × 100 = 7.37%
Question 4.
A Commercial Bank has the following capital funds and assets. Segregate the capital funds into Tier-I and Tier-II Capitals. Find out the risk-adjusted and risk-weighted assets and capital adequacy ratio:
(₹ in Crore)
Capital Funds:
Paid up Equity Share Capital 750
Statutory Reserve 150
Share Premium 150
Capital Reserve (of which ₹ 40 Crore were due to revaluation of assets and balance due to sale) 90
Assets:
Cash Balance with RBI 60
Claims on Banks 170
Other investments 2,300
Loan and Advances:
Guaranteed by Government of India/State Government 400
Granted to Staff of bank, fully covered by Super Annuation Benefits and mortgage of Flat/House 50
Other Loans and Advances 6,170
Premises, Furniture and Fixtures, Other Assets 3,925
Intangible Assets 15
Off-Balance Sheet items:
Acceptance. Endorsements and Letter of Credit, Guarantees and Other obligations 1,550 (May 2012, 8 marks)
Answer:
Capital Adequacy Ratio = \(\frac{\text { Capital fund }}{\text { Risk adjusted asset }} \times 100\)
= \(\frac{1,103 \text { crores } \times 100}{13,989 \text { crores }} \)
=7.89%
Question 5.
A commercial bank has the following capital funds and assets. Segregate the capital funds into Tier I and Tier II capitals. Find out the risk-adjusted asset and risk-weighted asset ratio. State your observation on the risk-weighted asset ratio.
| Particulars | Amount (₹ in crores) |
| Equity Share Capital | 400.00 |
| Statutory Reserve | 250.00 |
| Capital Reserve (of which ₹ 18 crores were due to revaluation of assets and the balance due to sale of capital assets) | 86.00 |
Assets:
Cash Balance with RBI 12.00
Balance with other Banks 20.00
Other Investments 40.00
Loans & Advances
(i) Guaranteed by Government 14.50
(ii) Others 5,465.00
Premises Furniture & Fixtures 74.00
On Balance Sheet Items
(i) Guarantees and other obligations 700.00
(ii) Acceptances, endorsements and letter of credit 4,900.00 (Nov 2014, 8 marks)
Answer:
At present capital adequacy ratio as per RBI norms is 9%. Therefore, Bank has to improve the ratio by introducing further Tier – I capital or by reducing risk-adjusted assets.
Question 6.
A commercial bank has the following capital funds and assets. You are required to segregate the capital funds into Tier-I and Tier-II capitals and also find out the risk-adjusted and risk-weighted assets and capital adequacy ratio.
| Capital Funds and Assets | ₹ in crores |
| Paid-up share capital | 1,500 |
| Statutory Reserves | 300 |
| Securities Premium | 309 |
| Capital Reserve (of which ₹ 80 crores were due to revaluation of assets and balance due to sale) | 180 |
| Assets: | |
| Cash balance with R.B.I. | 120 |
| Claims on Banks | 340 |
| Other Investments | 4,600 |
| Loans & Advances: | |
| Guaranteed by Government of India and State Governments | 800 |
| Bank Staff Advances – Fully covered by Super Annuation Benefits | 100 |
| Other loans and advances | 340 |
| Premises, Furniture &Fixtures, Other Assets | 7,850 |
| Intangible Assets | 30 |
| Off-Balance Sheet Items: | |
| Acceptance, Endorsements, Letter of Credits, Guarantees and Other Obligations | 3,100 |
(May 2017, 6 marks)
Answer:
Risk-Weighted Assets Ratio
= \(\frac{\text { Capital Funds (Tier I \& Tier II) }}{\text { Risk Adjusted Assets + Off B/S Items }} \times 100\)
= \(\frac{2,206}{15,978} \times 100\)
= 13.81%
The expected ratio is 9%. So, it is better ratio for Bank.
Question 7.
Astha Bank has the following Capital Funds and Assets as at 31st March 2018:
| ₹ In crores | |
| Capital Funds: | |
| Equity Share Capital | 600.00 |
| Statutory Reserve | 470.00 |
| Profit and Loss Account (Dr. Balance) | 30.00 |
| Capital Reserve (out of which ₹ 25 crores were due to revaluation of assets and balance due to sale of assets) | 130.00 |
Assets:
Balance with other banks 15.00
Cash balance with RBI 35.50
Claims on Banks 52.50
Other Investments 70.00
Loans and Advances:
(i) Guaranteed by government 22.50
(ii) Guaranteed by DICGC/ECGC 110.00
(iii) Others 9,365.00
Premises, furniture and fixtures 92.50
Leased assets 40.00
Off-Balance Sheet items:
(i) Acceptances, endorsements and letters of credit 1,100.00
(ii) Guarantees and other obligations 6,200.00
You are required to:
(i) Segregate the capital funds into Tier I and Tier II capitals.
(ii) Find out the risk-adjusted assets and risk-weighted assets ratio. (May 2018, 10 Marks)
Answer:
= \(\frac{1,145.00+11.25}{9,636.00+7,300.00} \times 100 \)
= \(\frac{1,156.25}{16,936.00} \times 100 \)
Capital Adequaly Ratio = 6.83%
Expected Ratio is 9%. So the bank has to improve the ratio by introducing further Tier-I capital.
Question 8.
Vasu Commercial Bank has the following capital funds and assets. Segregate the capital funds into Tier – I and Tier-II capitals. Find out the risk-adjusted asset and risk-weighted assets ratio:
| Particulars | ₹ in crores |
| Equity Share Capital | 600.00 |
| Statutory Reserve | 250.00 |
| Capital Reserve (of which ₹ 26 crores were due to revaluation of assets and the balance due to sale of capital assets) | 87.00 |
Assets:
Cash Balance with RBI 20.00
Balance with other banks 28.00
Other investments 38.00
Loans and advances:
(i) Guaranteed by the Govt. 18.50
(ii) Others 6,625.00
Premises. Furniture and fixtures 108.00
Off-Balance Sheet Items –
(I) Guarantee and other obligations 600,00
(ii) Acceptances, endorsements and letter of credit 4,200.00 (Nov 2020,10 marks)
Question 9.
A commercial bank has the following capital funds and assets. Segregate the capital funds into Tier I and Tier Il capitals. Find out the risk-adjusted asset and risk-weighted assets ratio:
| Capital Funds : | (₹ in lakhs) |
| Equity Share Capital | 29,00 |
| Perpetual Non-cumulative Preference Shares | 8,00 |
| Perpetual Cumulative Preference Shares (fully paid up) | 5,50 |
| Statutory Reserve | 13,50 |
| Capital Reserve (of which 13.5 lakhs were due to revaluation of assets and the balance due to sale of assets) | 45 |
| Securities Premium | 7,00 |
Assets:
Cash balance with RBI 3,50
Balance with other banks 4,75
Claims on Banks 10,25
Investments in Bonds issued by other banks 78,00
Investments In venture capital funds 17,00
Other investments 121,00
Loan and Advances:
(i) Loans guaranteed by Government 16,10
(ii) Loans guaranteed by public sector undertakings 6.20
(iii) Leased assets 4
(iv) Advances against term deposits of 15,00
(v) Educational loans 12
Other Assets:
(i) Premises. Furniture & Fixtures and other assets 150,55
(n) Intangible assets 18
(iii) Deferred tax asset 0.40
Off-Balance Sheet Items:
(i) Acceptances, Endorsements & letter of credit 203,00
(ii) Non-funded exposure to real estate 19,00 (Jan 2021, 10 marks)
Question 10.
Answer the following:
(viii) Mention the condition when e Cash credit overdraft account is treated as ‘Out of order. (May 2010, 2 marks)
Or
Answer the following:
(c) Specify the conditions when cash credit overdraft account is treated as “Out of order’? (Nov 2015, 4 marks)
Answer:
A cash credit overdraft account is treated as NPA if it remains out of order for a period of more than 90 days. An account ts treated as out of order’ if any of the following conditions is satisfied:
(a) The outstanding balance (remains continuously in excess of the sanctioned limit/drawing power.
(b) Though the outstanding balance is less than the sanctioned limit/drawing power.
- There are no credits continuously br more than 90 days as on the date of balance sheet; or
- credits during the aforesaid period are not enough to cover the interest debited during the same period.
(c) Further any amount due to the bank under any credit facility is overdue if it is not paid on the due date fixed by the bank.
Question 11.
find out the Income to be recognised at ABC Bank for the year ended 31st March in respect of interest on Advances as below
(Nov 1998, 10 Marks)
Answer:
Question 12.
Find out the income to be recognised by ABC Bank Ltd. for the year ended 31st March, 2014 in respect of interest on advances as detailed below;
(Nov 2014, 4 Marks)
Answer:
Question 13.
Answer the following:
(c) Write short note on classification of advances in case of Banking Company. (May 2016, 4 marks)
Answer:
Classification of Advances ¡n case of Banking Company.
Bank advances are classified in following 4 groups at:
1. Standard Assets:
Standard Assets is one which does not disclose any problem and which does not carry more than normal risk attached to business whether secured or unsecured.
The provision for Standard Assets are as follows:
(a) Direct Advances to Agri or SME = 0.25% Provision
(b) Advances to Commercial Real Estate Sector= 1 .00% Provision
(c) Other loans A/c = 0.40%Provison.
2. Substandard Assets:
Substandard Asset is one which has been classified as NPA for a period not exceeding 12 months.
provisions:
(a) On secured loans A/c 15%
(b) On unsecured portion Infrastructure loan A/c where certain safeguards such as escrow accounts are available 20%
(c) On unsecured other loans A/c 25%
3. Doubtful Asset:
A Doubtful Asset is one which has remained NPA for a period of exceeding 12 months.
Provision:
(a) On unsecured portion 100%
(b) On secured portion it period for which the advance has been considered as doubtful
(i) Up to 1 year 25%
(ii) Exceeding 1 year but not exceeding 3 year. 40%
(iii) Exceeding 3 year 100%
4. Loss Asset:
A Loss Asset is ene where loss has been identified by the Bank or Internal or External Auditors or the RBI inspection but the amount has not been written oft wholly or partly. Provision made is 100%.
Question 14.
Answer the following:
(vii) What s the percentage of NPA provision to be made by bank in respect of fully secured doubtful advances of more than 3 years old? (Nov 2007, 2 marks)
Answer:
For Banking Companies, 100% NPA provision is made in respect of fully secured doubtful advances of more than 3 years. This provision is made respectively whether the advance is fully or partly secured or unsecured But, in case of government-guaranteed advances, this rate of provision does not apply.
Question 15.
Answer the following:
(ix) In X Bank Ltd.. the doubtful asset (more than 3 years) as on 31.3.2008 is ₹ 1,000 lakhs. The value of security (including DICGC 100% cover of ₹ 100 lakhs) is ascertained at ₹ 500 lakhs. How much provision must be made in the books of the Bank towards doubtful assets? (Nov 2008, 2 marks)
Answer:
Question 16.
Answer the following:
(a) From the following information of Great Bank Limited, compute the provisions to be made in the Profit and Loss account:
(Nov 2008,4 Marks)
Answer:
Question 17.
Answer the following:
(ii) From the following information of details of advances of Zenith Bank Ltd., calculate the amount of provisions to be made in Profit and Loss Account for the year ended on 31.3.2010:
(Nov 2010, 5 Marks)
Answer:
Note: It is assumed that sub-standard assets and all doubtful assets are fully secured.
Question 18.
Answer the following:
(c) From the following information, compute the amount of provisions to be made in the Profit and Loss Account of a Commercial Bank for the year ending on 31-03-2012
(Includes secured exposures ₹ 1,000 Lakhs and balance unsecured exposures ₹ 2,500 Lakhs includes ₹ 1,500 Lakhs in respect of infrastructure loan accounts where escrow accounts are available)
Doubtful advances-unsecured portion 1,500
Doubtful advances-secure portion
– for doubtful up to 1 year 500
– for doubtful more than 1 year and up to 3 years 600
– for doubtful more than 3 years 300
Loss Advances 200 (May 2012, 5 marks)
Answer:
Question 19.
Answer the following:
A loan account remains out of order as on the date of Balance Sheet of a Bank. The account has been classified as doubtful assets (up to 1 year).
Details of the accounts are:
Outstanding ₹ 6.73,000
ECGC coverage 25% (Limited to ₹ 100,000)
Value of Security Held ₹ 1,50,000
Compute the necessary provision to be made by a Bank as per applicable rates. (Nov 2012, 5 marks)
Answer:
Question 20.
From the following information of STP Bank Ltd. pertaining to the financial year 2012-13, compute the provisions to be made in the Profit and Loss Account:
(Nov 2013, 4 Marks)
Answer:
Question 21.
Answer the following: ‘
(a) A loan account remains out of order as of the date of Balance Sheet of a Bank. The account has been classified as doubtful assets (up to 3 years).
The detail of the account is:
Compute the necessary provision to be made by bank as per applicable rate. (May 2014, 4 marks)
Answer:
Calculation of Provision Required to be made
| Particulars | ₹ |
| Balance Outstanding | 7,24,000 |
| Less: Value of Security (Realisation value) | (1.75,000) |
| Unrealised value | 5,49,000 |
| Less: ECGC Coverage (maximum limit) | (1,50,000) |
| Unsecured Balance | 3,99,000 |
| Required Provision | |
| 100% on unsecured balance | 3,99,000 |
| 40% on secured portion (40% of 1,75,000) | 70,000 |
| Total Provision Required | 4,69,000 |
Question 22.
From the following information of MIs, XV Bank Ltd. for the year ended 31st March 2014. compute the provisions to be made in the Bank’s Books for Doubtful Assets:
| ₹ in Lakhs | |
| Doubtful Assets (More than 3 Years) | 2,000 |
| DICGC 100% Cover | 200 |
| Value of Security including DICGC Cover | 1,000 |
(May 2015, 4 marks)
Answer:
Question 23.
The following is an extract of Trial Balance of SM Bank, an overseas bank 31st March 2018.
Additional Information:
(1) Standard Assets Includes ₹ 15,00 Lakhs Advances to Commercial Real Estate (CRE).
(2) Out of ₹60,00 Lakhs of Sub-Standard Asset ₹ 20,00 Lakhs are unsecured. Unsecured includes ₹ 5,00 Lakhs in respect of Infrastructure Loan Accounts with ESCROW safeguard.
(3) Doubtful Asset for more than 3 Years includes ₹ 4,00 Lakhs, which is covered by 50% ECGC, value of security of which is ₹ 150 Lakhs. You are required to find out the amount of provision to be shown in the Profit& Loss Account of SM Bank. (May 2019, 10 marks)
Answer:
(i) order to determine the amount to be credited to the profit and loss account it is necessary to first ascertain the amount attributable to the unexpired portion of the period of the respective bills. The workings are as given below:
1. The bill is due on 4th May; hence the number of clays after 31st March is 34 days. The discount on ₹ 1,46,200 for 34 days @ 15 p.a. will be =₹ 1.46,200 × \(\frac{15}{100} \times \frac{34}{365}\) = ₹ 2,043
2. Number of days in the unexpired portion of the bill is 42: discount on ₹ 2,30,400 for 42 days @ 15% p.a. will be ₹ 3,977
3. Number of days ¡n the unexpired portion of the bill is 58: discount on ₹ 4,35,900 for 58 days © 15% p.a. will be ₹ 10,390
4. Number of days in the unexpired portion of the bill is 79: Discount on ₹ 4,36,200 for 79 days @ 16% pa. will be ₹ 15,106.
5. Number of days in the unexpired portion of the bill is 95: discount on ₹ 2.68,100 for 95 days@ 16%p.a. will be ₹ 11,165
The amount of discount to be credited to the Profit and Loss A/c will be:
Note: In the Profit and Loss Account, the discount on bills will not appear as a separate item but will be included in the heading Interest/Discount on advances bills as per form B of the new format.
(ii) Calculation of amount of provision to be shown In the profit & loss atc of SM Bank:
Question 24.
The following particulars are extracted from the Books of the ABC Ltd. for the year ending 31st March 2017.
(i) Interest and Discounts ₹ 1,98,64,800
(ii) Rebate on Bills Discounted (balance on 01.04.2016) ₹ 70,080
(iii) Bills Discounted and purchased ₹ 77,46,400
It is ascertained that the proportionate discount not yet earned on The Bills Discounted which will mature during 2017-18 amounted to ₹ 96,860.
Pass the necessary Journal Entries with narration adjusting the above and show:
(a) Rebate on Bills Discounted Account, and
(b) Interest and Discount Account in the Leger of ABC Limited. (Nov 2003, 10 marks)
Answer:
Question 25.
The following information is available the books of X Bank Limited as on 31st March 2007
Bills discounted ₹ 1,37,05,000
Rebate on BiHs discounted (as on 1.4.2006) ₹ 2,21,600
Discount received ₹ 10,56,650
Details of büs discounted are as follows:
Value of bill Due data Rt of Discount
(₹)
18,25,000 5.6.2007 12%
50,00,000 12.6.2007 12%
28,20,000 25.6.2007 14%
40,60,000 6.7.2007 16%
Calculate the rebate on bills discounted as on 3.1.3.2007 and give necessary Journal Entries. (Nov 2007, 8 marks)
Answer:
Question 26.
The following particulars are extracted from the records of M/s. Engco Bank Limited for the year ended 31st March 2011.
The rate of discount is 12% per annum. You are required to:
(i) Calculate rebate on bills discounted as on 31st March 2011.
(ii) Determine the amount of discount to be credited to the profit and loss account for the year ended 31st March, 2011.
(iii) show the necessary Journal Entries ¡n the books of M/s. Engco Bank Ltd. as on 31st March. 2011. (Nov 2011, 8 marks)
Answer:
Amount of rebate on bills = ₹ 11.43,38000 x 12% x 1/365 = ₹ 37,591 (approx.)
(ii) Determination of amount of discount to be credited to the Profit and Loss Account for the year ended 31st March 2011.
Question 27.
The following information is available in the books of X Bank Limited as on 31st March 2013:
Bills discounted ₹ 1,37,05,000
Rebate on bills discounted (as on 1-4-2012) ₹ 2,21,600
Discount received ₹ 10,56,650
Calculate the rebate on bills discounted as on 31-3-2013 and give necessary Journal Entries the books of X Bank Ltd. as on 31st March 2013. (May 2013, 8 marks)
Answer:
Question 28.
Following facts have been taken out from the records of M/s. Sneha Bank Ltd. in respect of the year ending March 31, 2015:
(i) On 1-4-2014 Bills for collection were ₹ 10,15,000. During 2014-15 bills received for collection amounted to ₹ 89,75,000, bills collected were ₹ 64,50,000 and bills dishonoured and returned were ₹ 11,25,000. Prepare Bills for collection (Assets) Account and bills for Collection (Liability) Accounts. (May 2015, 3 marks)
Answer:
Question 29.
ABC Bank Ltd. has a balance of 40 crores in “Rebate on bills discounted’ account as on 31st’ March, 2014. The Bank provides you the following information:
(i) During the financial year ending 31st March 2015 ABC Bank Ltd. discounted bills of exchange of ₹ 5,000 crores charging interest @ 14% and the average period of discount being 146 days.
(ii) Bills of exchange of ₹ 500 croies were due for realization from the acceptors/customers alter 31st March 2015. The average period of outstanding after 31st March 2015 being 73 days. These bills of exchange of ₹ 500 crores were discounted charging interest @ 14% p.a. You are requested to pass necessary Journal Entries in the hooks of ABC Bank Ltd. for the above transactions. (Nov 2015, 4 marks)
Answer:
Question 30.
The following is an extract from the trial balance of Novel BankLimited as on 31st March, 2017:
Rebate on bills discounted as on 1st April 2016 ₹ 78,566 (Cr. bal)
Discount Received ₹ 1,60,572 (Cr. bal)
An analysis of bills discounted is as follows:
| Amount ₹ | Due Date |
| 2,90,000 | 01 June 2017 |
| 8,75,000 | 08 June 2017 |
| 5,65,000 | 21 June 2017 |
| 8,12,000 | 01 July 2017 |
| 6,50,000 | 05 July 2017 |
Find out the Amount of discount to be credited to Profit and Loss Account for the year ending on 31st March 2017 and pass the necessary journal entries. The rate of discount shall be taken at 10% per annum. (Nov 2017, 6 marks)
Answer:
Question 31.
Forward Bank Ltd. furnishes the following information as on 31st March, 2018
| Amount in ₹ | |
| Bills Discounted | 82,23,000 |
| Rebate on bills discounted as on 11 April 2017 | 1,32,960 |
| Discount received | 6,33,990 |
Details of bills discounted is as given below:
| Value of Bills (₹) | Due Date | Rate of Discount |
| 10,95,000 | 15th June,2018 | 14% |
| 30,00,000 | 25th June, 2018 | 12% |
| 16,92,000 | 5th July, 2018 | 16% |
| 24,36,000 | 15th July,2018 | 16% |
(i) Calculate the rebate on bills discounted as on 31st March, 2018.
(ii) Pass necessary Journal Entries. (Nov 2018, 5 marks)
Answer:
(i) In order to determine the amount to be credited to the Profit and Loss A/c it is necessary to first ascertain the amount attributable to the unexpired portion of the period of the respective bills. The workings are as given below:
(E) The bill is due on 15th June, 2018: hence the number of days after 31st March 2018 is 76. The discount on ₹ 10,95,000 for 76 days @ 14% per annum will be:
₹ 10,95,000 × \(\frac{14}{100} \times \frac{76}{365}\) = ₹ 31,920.
(ii) Number of days in the unexpired portion of the bill is 86: discount on ₹ 30,00,000 for 88 days @ 12% per annum will be ₹ 84,822.
(iii) Number of days in the unexpired portion of, the period of the bill is 96: discount on ₹ 16,92,000 for 96 days © 16% p.a. will be ₹ 71,203.
(iv) Number of days In the unexpired portion of the period of the bill is 106: Discount on ₹ 24,36,000 for 106 days @ 16% p.a. will be ₹ 1,13,191
The amount of discount to be credited to the profit and loss account will be:
Note: In the Profit and Loss Account, the discount on bills will not appear as a separate item but will be included in the heading Interest/Discount on advances/bills as per Form B of the new format.
Question 32.
As on 31.12.2017, the books of the Hero Bank include, among others, the following balances:
| Particulars | ₹ |
| Rebate on Bills Discounted (01.01.2017) | 3,20,000 |
| Discount Received | 46,00,000 |
| Bills Discounted and Purchased | 3,15,47,000 |
Throughout 2017, the Bank’s Rate for Discounting has been 18% and the Rate of Commission on Bilis for Collection 4%. On investigation and analysis, the Average Due Date for the Bills Discounted and Purchased is calculated on 15.02.2018 and that for Bills for Collection as 15.01.2018.
Show the computation of the amount to be credited to the Bank’s Profit and Loss Account on Discount Earned, under the head interest Earned’ for the year 2017. Show also the Journal Entries required to adjust the above-mentioned accounts.
Answer:
Question 33.
Following facts have been taken out from the records of MIs. Sr ‘‘ Bank Ltd. in respect of the year ending March 31, 2015:
(i) On 1-4-2014 Bills for collection were ₹ 10,15,000. During 2014-15 bills received for collection amounted to ₹ 89,75,000, bills collected were ₹ 64,50,000 and bills dishonoured and returned were ₹ 11,25,000. Prepare Bills for collection (Assets) Account and bills for Collection (Liability) Account. (May 2015, 3 marks)
Answer:
Question 34.
From the following facts drawn from the records of Honest Bank for the year ended 31st March, 2015, prepare the accounts as mentioned below
(i) On 1st April, 2014 Bills for Colledllon were ₹ 28,00,000. During 2014- 15, bills received for collection were ₹ 2,58,00,000. Bills collected were ₹ 1,88,00,000. Bills dishonoured arid returned were ₹ 22,00,000. Prepare Bills for Collection (Assets) Account and Bills for Collection (Liability) Account.
(ii) On 1st April, 2014, Acceptance, Endorsement etc. not yet satisfied amounted to ₹ 58,00,000. During the year, Acceptances, Endorsements, Guarantees etc. were ₹ 1,76,00,000. The Bank honoured acceptances of ₹ 1,00,00,000 and a client paid ₹ 40,00,000 against guaranteed liabilities. The Bank paid ₹ 4,00,000 which clients failed to pay. Prepare “Acceptances, Endorsements and Other Obligations Account” in the General Ledger.
(iii) A loan of ₹ 24,00,000 advanced by the Bank on 30 August 2014 @ 10% per annum, whose interest is payable half-yearly. The loan was outstanding as on 31st March, 2015. Nothing was paid either towards Principal or Interest of this loan. The security for the loan was 40,000 fully paid shares of ₹ 100 each. The shares were quoted on the stock exchange on 30th September, 2014 at ₹ 90 per share. Due to fluctuations, the price fell to ₹ 50 per share in January 2015. On 31st March. 2015 the share price quoted on the stock exchange was ₹ 96 per share. State giving reasons, whether the loan would be classified as secured or unsecured in the Balance Sheet of the Company as on 31st March, 2015.
(iv) The following balances were taken from the Trial Balance as on 31st March, 2015.
Proportionate discounts not yet earned for Bills to mature in 2014-15 were ₹ 56,000.
Prepare the following Accounts:
(a) Rebate on Bills Discounted Account
(b) Interest and Discount Account. (Nov 2016, 10 marks)
Answer:
(iii) For classifying loans as fully secured or otherwise, the value of the security as the last date of the year is considered. The value of the security is ₹ 38,40,000 covering the loan and the interest due comfortability. Hence, it is to be treated as a good and fully secured loan.
Question 35.
From the following information, you are required to prepare Profit and Loss Account of Zee Bank Ltd., for the year ending 31st March 2009:
| ₹ | ₹ | ||
| Interest and Discount | 44,00,000 | Interest Expended | 13,60,000 |
| Other Income | 1,25,000 | Operating Expenses | 13,31,000 |
| Income on investments | 5,000 | Interest on balance with RBI | 25,000 |
Additional information:
(a) Rebate on bills discounted to be provided for ₹ 15,000
(b) Classification of advances:
Standard Assets ₹ 25,00,000
Sub-standard Assets ₹ 5,60,000
Doubtful Assets not covered by security ₹ 2,55,000
Doubtful Assets covered by security
For 1 year ₹ 25,000
For2 years ₹ 50,000
For 3 years ₹ 1,00,000
For 4 years ₹ 75,000
Loss Assets ₹ 1,00,000
(c) Make Tax Provision @ 35%
(d) Profit and Loss Nc (Cr.) ₹ 40,000. (Nov 2009, 8 marks)
Answer:
Note: Total of Provisions and Contingencies is ₹ 10,30,813 computed as under – (a) Provision on Advances (WN 1) 5,90,250 + (b) Provision for Taxation = [ ₹ 45,40,000 – (₹ 13,60,000 + ₹ 13,31.000 + ₹ 5,90,250)] × 35% = ₹ 4,40,563.
Note: Schedules 14, 15,16 not written up separately, since the summary information is given in the question.
Question 36.
Given below is an extract from the trial balance of T.K. Bank Limited as on 31st December 2009:
| Amount ₹ | Due date In 2010 | Rate of discount (%p.a) |
| 1,40,000 | March 6th | 5 |
| 4,36,000 | March 12th | 45 |
| 2,82,000 | March 26th | 6 |
| 4,06,000 | April 6th | 4 |
Show the workings, how the relevant ¡tenis appear in the Bank’s Profit and Loss account as on 31st December, 2009 and in Bank’s Balance Sheet as on 31 December, 2009. (May 2010, 8 marks)
Answer:
Question 37.
How will you disclose the following Ledger balances in the Final accounts of DVD bank :
Additional information:
(i) Included in the Current accounts edger are accounts overdrawn to the extent of ₹ 250 lacs.
(ii) One of the Cash Credit account of 10 lacs (including interest ₹ 1 lacs) is doubtful.
(iii) 60% of Term loans are secured by government guarantees, 20% of cash credits are unsecured, other portion is secured by tangible assets. (May 2010,4 marks)
Answer:
Note: It is assumed that the cash credit has been in the ‘doubtful’ category for more than three years, hence provision made at 100%.
Question 38.
From the following information prepare the Profit & Loss Account of Jawahar Bank Umited for the year ended 31st March. 2011. Also, give necessary Schedules.
Bank should not keep more than 25% of its investments as ‘held-for-maturity’ investments. The market value of its best 75% investments is ₹ 9,00,000 as on 31st March 2011. (May 2011, 16 marks)
Answer:
Note:
1. It is assumed that all sub-standard and doubtful assets are fully secured.
2. 25% of investments classified as held for maturity need not be marked to market as per RBI Guidelines. However, the remaining 75% investments have been marked to market according to RBI Guideline.
3. As per RBI norms, provision of 0.40% should also be made on standard assets. However, in the absence of value of standard assets, in the question, no provision has been made on it.
Question 39.
The following high res are extracted from the books of KLM Bank Ltd. as on 31-03-2012:
Interest and discount received ₹ 38,00,160
Interest paid on deposits ₹ 22,95,360
Issued and subscribed capItal ₹ 10,00,000
Salaries and allowances ₹ 2,50,000
Directors’ Fees and allowances ₹ 35,000
Rent and taxes paid ₹ 1,00,000
Postage and telegrams ₹ 65,340
Statutory reserve fund ₹ 8,00,000
Commission, exchange and brokerage ₹ 1,90,000
Rent received ₹ 72,000
Profit on sale of investment ₹ 2,25,800
Depreciation on assets ₹ 40,000
Statutory expenses ₹ 38,000
Preliminary expenses ₹ 30,000
Auditor’s fee ₹ 12,000
The following further information is given:
(1) A customer to whom a sum of ₹ 10 lakhs was advanced has become insolvent and it is expected only 55% can be recovered from his estate.
(2) There was also other debts for which a provision of ₹ 2,00,000 was found necessary.
(3) Rebate on bill discounted on 31-03-2011 was t’ 15,000 and on 31 -03- 2012 was ₹ 20,000.
(4) Income tax of ₹ 2,00,000 is to be provided.
(5) The directors desire to declare 5% dividend.
Prepare the Profit and Loss account of KLM Bank Ltd. for the year ended 31-03-2012 and also show, how the Profit and Loss account will appear in the Balance sheet if the Profit and Loss account opening balance was NIL as on 31-03-2011. (Nov 2012, 8 marks)
Answer:
Profit and Loss Account balance of ₹ 3,75,445 wIll appear under the head Reserves and Surplus’ in Schedule 2 of the Balance Sheet.
Question 40.
Following facts have been taken out from the records of M/s. Sneha Bank Ltd. in respect of the year ending March 31, 2015:
On 1-4-2014, Acceptance, Endorsement, etc. not yet satisfied amounted to ₹ 27,50,000. During the year under question. Acceptances, Endorsements, Guarantees etc., amounted to ₹ 67,50,000. Bank honoured acceptances to the extent of ₹ 44,50,000 and client paid off ₹ 15,00,000 against the guaranteed liability. Clients failed to pay ₹ 4,00,000 which the Bank had to pay. Prepare the ‘Acceptances, Endorsements and other obligations’ Account as it would appear in the General Ledger. (May 2015, 3 marks)
Answer:
Question 41.
From the following information of Wealth Bank Limited, Prepare Profit and Loss Account for the year ended 31st Mar. 2016:
(iii) Investments
Bank should not keep more than 25% of its investment as held for-maturity investment; the market value of its rest 75% of investment is ₹ 3,95,00,000 as on 31.03.2016.
(iv) Provide 35% of the profits towards provision for taxation.
(v) Transfer 25% of the profit to Statutory Reserves. (May 2016, 10 marks)
Answer:
Interest on NPA is recognized on cash basis, hence difference of accrued Interest not received have been reduced from the total accrued interest.
Notes:
1. As per RBI norms, every banking company incorporated In India is required to transfer at least 25% of its profit to the statutory reserve. However, in the above solution, transfer @ 20% of current profit has been done strictly on the basis of the information given in the question.
2. Cost of investment s missing in the question. Therefore, it is assumed that cost of 75% of the Investments, other than the investments held for maturity, is sarna as its market value. Hence, no diminution in the value is provided for in the given solution.
Question 42.
From the following information, you are required to prepare Profit and Loss Account of Simple Bank for the year ended as on 31st March, 2019:
(ii) Appropriations:
25% of profit is transferred to Statutory Reserves.
5% of profit is transferred to Revenue Reserve.
You are required to give necessary Schedules also. (Nov 2019, 10 marks)
Answer:
Question 43.
From the following information, calculate the amount of Provisions and Contingencies and prepare Profit and Loss Account of ‘Supreme Bank Limited’ for the year ending 31st March, 2018:
| Income | ₹ In Lakhs | Expenditure | ₹ In Lakhs |
| Interest and discount | 1,835 | Interest expended | 1,136 |
| Interest accrued on Investments | 8 | Printing & Stationery | 18 |
| Commission, exchange and brokerage | 12 | Repair & maintenance | 2 |
| Profit on sale of investments | 1 | Payment to and provision for employees (salaries, bonus etc.) | 80 |
| Rent received | 2 | Other Operating Expenses | 5 |
Additional Information:
| ₹ in lakhs | |
| (i) Rebate on bills discounted to be provided for | ‘3 |
| (ii) Classifications of Advances: Standard Assets |
4,100 |
| Sub-Standard Assets (fully secured) | 380 |
| Doubtful Assets not covered by security | 155 |
| Doubtful Assets covered by security For 1 year |
10 |
| More than 1 year, but less than 2 years | 18 |
| More than 2 year, but less than 3 years | 35 |
| More than 3 year | 22 |
| Loss Assets | 50 |
(iii) Make tax provision @ 35% of the profit.
(iv) Profit and Loss Account (Cr.) brought forward from the previous year 65,
Answer:
(ii) Calculation of Provsn f tax = 35% of [Total Income — Total Expenditure (excluding tax)]
= 35% of [(1,840 +15) — (1.136 +105 + 324.10)] = ₹ 101.47 lakhs
Total Provisions and contingencies = Provisions on NPAs + Provisions for tax = 324.10 + 101.47 = ₹ 425.57 lakhs
Question 44.
From the following information of Wealth Bank Limited, Prepare Profit and Loss Account for the year ended 31st March, 2018:
(iii) Provide 35% of the profits towards provision for taxations.
(iv) Transfer 25% of the profit to Statutory Reserves.
Answer:
Interest on NPA is recognized on cash basis, hence ditterence of accrued interest not received have been reduced from the total accrued interest.
