Corporate Accounting

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Semester: B. Com - IV Semester
Name of the Subject:
CORPORATE ACCOUNTING
Unit-1

MEANING OF COMPANY
Company is a voluntary association of persons formed for
the purpose of doing business having a distinct name and
limited liability. It is a juristic person having a separate legal
entity distinct from the members who constitute it, capable
of rights and duties of its own and endowed with the
potential of perpetual succession. The Companies Act,
1956, states that 'company' includes company formed and
registered under the Act or an existing company i.e. a
company formed or registered under any of the previous
company laws.

FEATURES OF A COMPANY
1. Registration:
A company comes into existence only after registration under the Companies
Act. But a Statutory Corporation is formed and commence business as
notified or stated in the Act and as passed in Legislature. In case of
partnership, registration is not compulsory.
2. Voluntary Association:
A company is an association of many persons on a voluntary basis. Therefore
a company is formed by the choice and consent of the members.
3. Legal Personality:
A company is regarded by law as a single person. It has a legal personality.
This rule applies even in the case of “One-man Company.”

4. Contractual Capacity:
A shareholder of a company, in its individual capacity, cannot bind the company
in any way. The shareholder of a company can enter into contract with the
company and can be an employee of the company.
5. Management
A company is managed by the Board of Directors, whole time Directors,
Managing Directors or Manager. These persons are selected in the manner
provided by the Act and the Articles of Association of the company. A
shareholder, as such, cannot participate in the management.
6. Permanent Existence
The company has perpetual succession. The death or insolvency of a
shareholder does not affect its existence. A company comes into end only when
it is liquidated according to provision of the Companies Act.

KINDS OF COMPANIES
From the point of view of formation, the companies are of three kinds:
(1) Chartered Companies
Those companies which are incorporated under a special charter by the king or
sovereign such as East Indian Company. Such companies are rarely formed
now-a-days as trading companies.
(2) Statutory Companies
These companies are formed by special acts of Legislatures or Parliament. e.g.;
the Reserve Bank of India, the Industrial Finance Corporation, Damodar Valley
Corporation.
(3) Registered Companies
Such Companies which are incorporate under the Companies Act, 1956 or were
registered under the previous Companies Act.

Form the point of view of liability there are three kinds of Companies
(1) Limited Companies
In case of such companies, the liability of each member is limited to the extent
of a face value of shares held by him. Suppose A takes a share of Rs 10., he
remains liable to the extent of that amount. As soon as that amount in paid, he
is no more liable.
(2) Guarantee Companies
The liability of the member of such companies is limited to the amount he has
undertaken to contribute to the assets of the company in the event of its wound
up. This guaranteed amount is limited to fixed sum which is specified in the
memorandum.
(3) Unlimited Companies
They are nothing but large partnership registered under the Companies Act and
the members just like partners have unlimited liability and both share
contribution as well as their property are at stake when the company is to be
wound up. Such companies are rare these days.

From the point of view of Public investment companies may be of two kinds:
(1) Private Companies :
A private company means a company which by its articles (a) restricts the right
to transfer its shares, if any (b) limits the number of its members to fifty
excluding past or present employees of the company who are also members of
the company. (c) Prohibits any invitation to the public to subscribe for any
shares in our debentures of the company.
(2) Public Companies :
Public companies are those companies which are not private companies. All
the three ABOVE restrictions are not imposed on such companies.

SHARE CAPITAL-ISSUE AND FORFEITURE OF SHARES
1.AUTHORISED CAPITAL is also referred to, at times, as registered capital.
This is the total of the share capital which a limited company is allowed
(authorized) to issue to its shareholders. It presents the upper boundary for the
actually issued share capital (hence also 'nominal capital').
2.Issued Share Capital is the total of the share capital issued to shareholders.
This may be less than the authorized capital.
3.Subscribed Capital is the portion of the issued capital, which has been
subscribed by all the investors including the public. This may be less than the
issued share capital as there may be capital for which no applications have
been received yet ('unsubscribed capital').
4.Called up Share Capital is the total amount of issued capital for which the
shareholders are required to pay. This may be less than the subscribed capital
as the company may ask shareholders to pay by installments.
5.Paid up Share Capital is the amount of share capital paid by the
shareholders. This may be less than the called up capital .

DIFFERENCE BETWEEN SHARE AND STOCK
1.Stocks are fully paid up whereas shares may be fully paid up or partly paid
up.
2.Shares may be issued when a company is incorporated but stock cannot
be issued under such circumstances. Only fully paid shares are converted
into stock.
3.Stock is convenient method of transferring because it can be issued or
transferred in fractional parts whereas shares cannot be divided below the
face value of share.
4.Stocks are not numbered whereas shares are serially numbered.
5.Shares are of equal nominal amount value but stocks may be divided into
unequal amounts.
6.Shares are always registered and not transferrable by mere delivery but
stock may be registered or unregistered and unregistered stock can be
transferred by mere delivery.

EXPANSION OF SHARE CAPITAL
1.RIGHTS OR BONUS SHARES : The company may issues fresh shares to
the existing shareholders in proportion to the shares held by them.
2.INITIAL PUBLIC OFFER(IPO): The company may make an offer , inviting
the general public to subscribe to its shares.
3.PREFERENTIAL ALLOTMENT: A company may make a bulk allotment to
an individual, companies, venture capitalists or any other person through a
fresh issue of shares. It is known as preferential allotment. Under this
method, the entire allotment is made to pre-identified people, who may or
may not be existing shareholders at predetermined price. The lock-in-period
under this is three years from the date of allotment in case of promoter
Contribution. But in case of pre-issue of share capital of an unlisted company,
the lock-in-period is one year from the date of commencement of commercial
production.

JOURNAL ENTRIES FOR ISSUE OF SHARES
(1) On receipt of application money
Bank Account Dr
To Share Application A/c
(Being the application money on....shares..@ Rs.per share)
(2) On allotment of shares
(a) First of all application money on allotted shares is transferred to shares
capital account
Share Application Account Dr
To Share Capital A/C
(Being the application money transferred to Share Capital Account)
(b) Those applicants who could not be allotted any share, their application money
will be returned.
Share Application Account Dr
To Bank Account
(Being the application money of shares returned)

(3) On the allotment of share, the allotment money becomes due to the company
Share Allotment Account Dr.
To Share Capital Account
Being the Share allotment money due on ....share @ Rs...per share
(4) On receipt o allotment money, the entry is
Bank Account Dr.
To share allotment account.
Being the share allotment money is received
(5) On making the first call due from shareholders the entry is :
Share first call Account Dr.
To share capital Account.
Being the first call money is due.
(6) On receipt of the first call money, the entry is
Bank Account Dr.
To share first call Account.
Being share first call money is received.

Illustration 1
Fashion Fabrics Ltd. issued 100000 shares of Rs. 10 each on 1st April, 2006.
The amount payable on these shares was as under:
Rs 2 per share on application.
Rs 3 per share on allotment.
Rs 5 per share on call.
Make journal entries in the books of company.
Solution:
1. Bank A/c Dr 200000
To Share Application A/c 200000
(Application money received@ Rs 2 per share)
2. Share Application A/c Dr 200000
To Share Capital A/c 200000
(Share application money for 100000 shares transferred to
share capital A/c)
3. Share Allotment A/c Dr 300000
To Share Capital A/c… 300000
(Allotment money made due on 100000 shares @ Rs 3/- per share)

4. Bank A/c Dr 300000
To Share Allotment A/c. 300000
(Allotment money received on 100000 shares @Rs 3 per share.)
5. Share First & Final call A/c. Dr 500000
(Call money on 1,00,000 shares @ Rs 5 per share made due)
6. Bank A/c Dr 500000
To Share First & Final call A/c. 500000
(Call money received on 1,00,000 shares @ Rs 5 per share)
Note : Although shares may be equity shares or preference shares but if
the term shares is used it means equity

Issue of shares at premium
If a company issues its shares at a price more than its face value, the shares
are said to have been issued at Premium. The difference between the issue
price and face value or nominal value is called ‘Premium’. If a share of
Rs 10 is issued at Rs 12, it is said to have been issued at a premium of
Rs 2 per share. The money received as premium is transferred to Securities
Premium A/c. The Companies Act has laid down certain restrictions on the utilization of
the amount of premium.
According to Section 78 of this Act, the amount of premium can be
utilized for :
(i) Issuing fully-paid bonus shares;
(ii) Writing off preliminary expenses, discount on issue of shares,
underwriting commission or expenses on issue;
(iii) Paying premium on redemption of Preference shares or Debentures.
(iv) For purchase of its own shares.

Accounting Treatment of premium on Issue of Shares
Following is the accounting treatment of Premium on issue of shares :
(a) Securities premium collected with share Application money :
If the Securities premium is collected on application and the company has taken
decision about the allotment of shares, the following journal entry is made :
Share Application A/c. Dr
To Securities Premium A/c
(The amount of Securities premium received on application of the allotted shares is
transferred to Securities Premium A/c)
(b) Premium collected with Allotment money or Calls.
If the company decides to demand the premium with share Allotment or and share call
money, the journal entry made is:
Share Allotment A/c Dr
Or/and
Share Call A/c Dr
To Securities Premium A/c
(Adjustment of share premium due on……shares @Rs…….per share.)

ISSUE OF SHARES AT DISCOUNT
When the issue price of share is less than the face value, shares are said
to have been issued at discount. For example if a company issues its shares
of Rs 100 each at Rs. 90 each, the shares are said to be issued at discount.
The amount of discount is Rs 10 per share (i.e. Rs 100 – Rs 90). Discount
on shares is a loss to the company.
Section 79 of Companies Act 1956 has laid down certain conditions subject
to which a company can issue its shares at a discount. These conditions are
as follows :
(i) At least one year must have elapsed from the date of commencement
of business;
(ii) Such shares are of the same class as had already been issued;
(iii) The company has sanctioned such issue by passing a resolution in
its General meeting and the approval of the court is obtained.
(iv) Discount should not be more than 10% of the face value of the
share and if the company wants to give discount more than 10%,
it will have to obtain the sanction of the Central Government.

Accounting Treatment of Shares Issued at Discount
The amount of discount is generally adjusted towards share allotment money and the
following journal entry is made:
Share Allotment A/c Dr
Discount on issue of shares A/c Dr
To Share Capital A/c
Allotment money due on….shares @Rs ……per share after allowing discount @Rs
……….per share.

FULL, UNDER AND OVER SUBSCRIPTION
A company decides to issue number of shares to raise capital. It invites public to buy
these shares. Now there may be three situations :
1.Full Subscription
Company may receive applications equal to the number of shares company has
offered to people. It is called full subscription. In case of full subscription the journal
entries will be made as follows :
(a) On receipt of application money
Bank A/c Dr
To Share Application A/c
(Application money received for ......... shares)
(b) On allotment of shares
Share Application A/c Dr
(Application money of shares transferred to capital A/c on their allotment)

II. The company does not receive application equal to the number of shares
offered for subscription, there may be two situations :
(i) under subscription
(ii) over subscription
(i) Under subscription
The issue is said to have been under subscribed when the company receives
applications for less number of shares than offered to the public for
subscription. In this case company is not to face any problem regarding
allotment since every applicant will be allotted all the shares applied for.
But the company can proceed with allotment provided the subscription for
shares is at least equal to the minimum required number of shares termed
as minimum subscription.
(ii) Over Subscription
When company receives applications for more number of shares than the
number of shares offered to the public for subscription it is a case of over
subscription. A company cannot allot more shares than what it has offered.
In case of over subscription, company has the following options

If the application money received on partially accepted applications is more
than the amount required for adjustment towards allotment money, the
excess money is refunded. However, if the Articles of the company so
authorize, the directors may retain the excess money as calls in advance to
be adjusted against the call/calls falling due later on.
the entry is made :
Share Application A/c Dr
To Call-in-advance A/c
(The adjustment of excess share application money retained as call-in advance in
respect of ... shares).

FORFEITURE OF SHARES
If a shareholder fails to pay the due amount of allotment or any call on shares
issued by the company, the Board of directors may decide to cancel his/her
membership of the company. With the cancellation, the defaulting shareholder also
loses the amount paid by him/her on such shares. Thus, when a shareholder is
deprived of his/her membership due to non payment
of calls, it is known as forfeiture of shares.
1. Forfeiture of shares issued at Par
When shares issued at par are forfeited the accounting treatment will be
as follows:
(i) Debit Share Capital Account with amount called up (whether received
or not) per share up to the time of forfeiture.
(ii) Credit Share Forfeited A/c. with the amount received up to the time
of forfeiture.
(iii) Credit ‘Unpaid Calls A/c’ with the amount due on forfeited shares. The

ILLUSTRATION : India infrastructure Ltd. has issued its shares of Rs. 20 each at a
discount of Rs 2 per share. Mahima holding 100 shares did not pay final call of Rs 5
per share. Later on the company reissued100 shares of these forfeited shares at (I)
Rs. 15 per share. Make journal entries for the forfeiture and reissue of the shares in the
books of company.
SOLUTION: Share Capital A/c Dr 2000
To Shares Forfeited A/c 1300
To Discount on Issue of Shares A/c 200
To Shares Final Call A/c 500
(Forfeiture of 200 shares issued at discount for non payment of final call)
Reissue of shares: Reissued at Rs 15 per share
I. (i) Bank A/c Dr 1500
Discount on Issue of Shares A/c Dr 200
Shares Forfeited A/c Dr 300
(100 shares reissued at Rs 15 per share)
(ii) Shares Forfeited A/c Dr 1000
To Capital Reserve A/c 1000
(Balance in share Forfeited A/c of 100 shares reissued transferred to Capital Reserve
A/c)

ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH
Sometimes shares are issued to the promoters of the company in lieu of the services
provided by them during the incorporation of the company. The issue price of these
shares is normally debited to 'Goodwill A/c’ and journal entry is made as follows :
Goodwill A/c Dr
In case of purchase of assets like building, machinery, stock of materials,
etc. the following journal entry is made :
1. Assets A/c Dr
To Vendors/Creditors A/c
(Assets purchased)
2. Vendors/Creditors A/c Dr
(Issue of shares of Rs…….each fully paid up)

Semester: B.Com – IV Semester
Unit-2

What’s Inside ?
Learning Objectives
hink Corner
uiz Corner
Trading and profit and loss account
Trading account
Trading and profit and loss account
Net purchases and net sales
Capital account 1 2

Learning Objectives
Prepare the trading account and calculate the cost
of goods sold and gross profit or gross loss.
Prepare the trading account with appropriate
adjustments for sales and for items affecting the
cost of goods sold.
Prepare the profit and loss account and calculate
the net profit or net loss.
Prepare the trading and profit and loss account.
After reading this chapter, you will be able to:

Learning Objectives
Balance off the capital account at the year end.
Draw up the balance sheet and put relevant account
balances under appropriate headings.
Prepare the final accounts in vertical format.
Prepare a profit and loss account for a business in
the service sector that is not trading in goods.
After reading this chapter, you will be able to:

Flow of preparing final accounts
When business transactions occur, we need to enter these
transactions into _______.
At the end of each month, the accounts need to be _____ to have
an overview of the business.
At the end of the financial year, the accounts need to be closed to
prepare the ___________.
A __________ needs to be drawn up before the final accounts are
prepared.
A _____________ and a ___________________ are prepared to
calculate the profit or loss made by the firm.
The ______ account needs to be closed by transferring the net
profit / loss and the drawings against it.
A ___________ can then be drawn up.
accounts
final accounts
trial balance
trading account profit and loss account
capital
balance sheet
closed

Trading account and cost of goods sold
A trading account is an account in which __________ or
________ is calculated.
Gross profit is the excess of ____ over the _______
_________ for the period.
Gross loss is the excess of _______________ over ____
for the period.
Trading account is a double entry account where the left-hand
side is the _________ and the right-hand side is the
_________.
Gross profit = Sales – Cost of goods sold
Gross loss = Cost of goods sold – Sales
gross profit
gross loss
sales
goods sold
cost of
cost of goods sold
sales
debit side
credit side

At the end of a financial year, businesses usually have
unsold goods; we call this __________. An annual
_________ is usually held at the end of a financial year
to ascertain the value of closing stock.
Closing stock is carried forward to the next financial
year; we call this the ___________.
A ____ account is opened to record closing stock and
opening stock.
Cost of = Opening stock + Purchases – Closing stock
goods sold
closing stock
stocktaking
opening stock
stock
Total stock available Stock remained
unsold

The steps for preparing the trading account are as
follows:
Example 1: Flora Company’s financial year ended on
31 December 20X8. Here is the information extracted
from her books:
Sales 100,000
Purchases 60,000
Opening stock 8,000
Closing stock 10,000

tep Close the sales account and transfer the credit
balance to the trading account.
Dec31 Trading 100,000 Dec31 Total for the year
100,000
20X820X8
Sales
Sales 100,000
Trading

Dec31 Trading 60,000Dec31 Total for the year60,000
20X820X8
Purchases
Sales 100,000
Trading
tep Close the purchases account and transfer the
debit balance to the trading account.
Purchases 60,000

Dec31 Trading 8,000Jan 1 Balance b/f 8,000
20X820X8
Stock
tep Calculate the cost of goods sold by transferring
the opening and closing stock from the stock
account to the trading account.
Dec31 Trading 10,000 “ 31 Balance c/f 10,000
18,00018,000
Sales 100,000
Trading
Purchases 60,000
Opening stock 8,000 Closing stock 10,000

tep Balance off the trading account and transfer
the balance to the profit and loss account.
Purchases 60,000 Sales 100,000
Trading
Gross profit 42,000
110,000110,000
Transferred to
the profit and loss
account

The accounts would be closed as follows:
Example 2: On 31 December 20X7, Panda Company
had the following account balances:
Sales 70,000
Purchases 80,000
Opening stock 4,000
Closing stock 5,000

Dec31 Trading 70,000 Dec31 Total for the year70,000
20X720X7
Sales
Dec31 Trading 80,000Dec31 Total for the year80,000
20X720X7
Purchases
Trading

Gross loss 9,000
84,00084,000
Transferred to
the profit and loss account
Trading
Dec31 Trading 4,000Jan 1 Balance b/f 4,000
20X720X7
Stock
Dec31 Trading 5,000 “ 31 Balance c/f 5,000
9,0009,000

Adjusted Purchases and
Closing Stock
• Sometimes the Closing Stock may be given in the Trial Balance itself. This
would mean that both the Opening and the Closing Stocks have been
adjusted in the Purchases.
• In such a situation, the Opening Stock will not appear in Trial Balance.
• The Trial Balance will show only the figures of Adjusted Purchases and
Closing Stock.
• The Adjusted Purchases are in fact the Cost of Goods Sold.
• They have been worked out by adding the Opening Stock + Net Purchases
+ Direct Expenses – Closing Stock.
• The Adjusted Purchases are shown on the debit side of “Trading Account”.
• In such a situation there is no need to show “Closing Stock in the Trading
Account” as it already stands adjusted in Purchases.
• It will be shown only on the “Assets side of Balance Sheet”.

Adjusted Purchases and
Closing Stock
• Outstanding Salaries:-
Adjustment Entry:
Concerned Expense A/c--------Dr
To Outstanding Expenses A/c
• The Outstanding Expenses is treated in Final Accounts as follows:-
 Added to the concerned expenses in the “Trading and Profit and Loss A/c”.
 Shown on the Liabilities side of the Balance Sheet as a separate item under
“Current Liabilities”.

Unit-3

ACCOUNTING STANDARD -
14
ACCOUNTING FOR
AMALGAMATIONS

PURPOSE
u Accounting for amalgamations,
u Treatment of any resultant goodwill
or reserves.
It does not deal with acquisition by one company of
another company in consideration for payment in cash or
by issue of shares.

TYPES OF AMALGAMATIONS
u NATURE OF MERGER
u NATURE OF PURCHASE

CONDITIONS FOR NATURE
OF MERGER
All the assets and liabilities are transferred;
Shareholders holding not less than 90% of the face value of the
equity shares of the transferor company become
shareholders of transferee company;
The consideration is discharged by the issue of equity shares in the
transferee company;
The business of the Transferor Company is intended to be
carried on; &
No adjustment to be made to the book values of the assets and
liabilities.

METHODS FOLLOWED
NATURE OF MERGER -- Pooling of Interests
method
NATURE OF PURCHASE -- Purchase method

POOLING OF INTERESTS
METHOD
u The assets, liabilities and reserves are recorded
at their existing carrying amounts.
u Uniform set of accounting policies is adopted.
u The difference between the share capital issued
and the share capital of the transferor company
should be adjusted in reserves.

PURCHASE METHOD
u The assets & liabilities are recorded either at
existing carrying values or by allocating the
consideration on the basis of Fair values on the
date of amalgamation.
u The reserves of the transferor company, other
than the statutory reserves, should not be
included in the financial statements of the
transferee company. Contd...

PURCHASE METHOD
CONSIDERATION
Securities
Cash
Other assets
In determining the value of the consideration, an
assessment is made of the fair value of its elements.

PURCHASE METHOD
If
Consideration > Net Asset value GOODWILL
Consideration < Net Asset value CAPITAL
RESERVE

Unit-4

DEFINITION
Section 5 of banking regulation act defines
banking as “the accepting, for the purpose
of lending or investment, of deposit of
money from the public repayable on
demand or otherwise and withdrawable by
cheque, draft, order or otherwise.

Features of banking company
• The borrowing,raising,or taking up of money.
• The lending or advancing of money either upon or
without security.
• The granting and issuing of letters of credit,travellers
cheques and circular notes.
• The buying and selling of bullion.
• The buying and selling of foreign exchange including
foreign bank notes.
• Contracting for public and private loans negotiating and
issuing the same.
• Undertaking and executing trust.

Continued . . . . .
• The acquisition, constructing, maintenance and
alternation of any building or works necessary or
convenient for the purpose of the company.
• Carrying on and transacting every kind of guarantee
and indemnity business.
• The collecting and transmitting of money and
securities.
• Undertaking the administration of estates as
executor, trustee or otherwise

General Information
• No banking company can carry on business in India
unless its subscribed capital is not less than one- half
of the authorized capital and its paid up capital is
not less than one – half of subs.capital.
• A banking company cannot create any charge upon
its uncalled capital.
• Every banking co.shall transfer a sum equal to 25%
of profits to statutory reserve.
• A bank can open a branch only at the permission or
reserve bank

Accounting System
The accounting system of a banking company is
different from that of a trading or
manufacturing company. A bank has a large
number of customers whose acc are to be
maintained in such a way so that these should
be kept upto date.

Features Of Banking Acc System
• Entries in the personal ledgers are made directly from
vouchers.
• From such entries in personal acc each day summary sheets in
total are prepared.
• The general ledger’s trial balance is extracted and agreed
every day.
• A trial balance of detailed personal ledger is prepared
periodically and get agreed with general ledger.
• Two vouchers are prepared for every transaction not
involving cash- debit and credit voucher.

Books Required
• Receiving cashier’s counter cash book.
• Paying cashier’s counter cash book.
• Current accounts ledger.
• Loan ledger.
• Cash credit ledger.
• Investment ledger.
• Saving bank accounts ledger.
• Recurring deposits accounts ledger.
• Bill discounted and purchased ledger.

Principal Books Of Accounts
Are:
• Cash book: This book gives the summary of the
receiving cashier’s counter cash book and paying
cashier’s cash book.
• General ledger: This ledger contains control acc
for subsidiary ledger listed above and acc of
expenses and assets not covered by the
subsidiary ledger.

Notes And Instruction For
Compilation
• The formats of balance sheet and profit n loss acc
cover all items likely to appear in these statement.
• The words ‘current year’ and ‘previous year’ used
in the formats are only to indicate the order of
presentation and may not appear in acc.
• Figures should be rounded off to nearest thousand.

BANKS PREPARE THEIR ACCOUNTS ACCORDING
TO BANKING REGULATION ACT, 1949. THE FINAL
ACCOUNTSOF BANK ARE IN VERTICAL FORMAT .
THE FINAL ACCOUNTS CONSIST OF :-
a)PROFIT and LOSS ACCOUNT
b)PROFIT and LOSS APPROPRIATION ACCOUNT
c)BALANCE SHEET
THERE ARE 16 SCHEDULES IN THE FINAL
ACCOUNTS OF BANKS.

BALANCE SHEET OF XYZ BANK AS ON 31ST MARCH 2008
PARTICULARS SCHEDULE AMT.
NO.
Capital 1.
Reserves and surplus 2.
Deposits 3.
Borrowings 4.
Other liabilities 5.
TOTAL
Cash in hand and with RBI 6.
Bal. with other banks and money at
Call and short notice 7.
Investments 8.
Advances 9.
Fixed assets 10.
Other assets 11.
TOTAL
CONTINGENT LIABILITIES 12.

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31ST MARCH, 2008.
PARTICULARS SCHEDULE
NO. AMOUNT
INCOMES:-
Interest earned 13.
Other incomes 14.
TOTAL(A)
EXPENDITURE:-
Interest expanded 15.
Operating expenses 16.
Provision and contingencies -
TOTAL (B)
PROFIT (A-B)

PROFIT AND LOSS APPROPRIATION ACCOUNT
PARTICULARS AMOUNT
Net profit during the year
Profit of the last year
TOTAL PROFIT AVAILABLE FOR
APPROPRIATION
Statutory reserve
General reserves or other reserves
Dividends
SURPLUS TO BALANCE SHEET

WORKING NOTES :-
CAPITAL ( SCHEDULE NO. 1 )
PARTICULARS Amt.
Equity share capital
Preference share capital
Less:- calls in arrears
Add:- calls in advance
Add:- share forfeiture

RESERVES AND SURPLUS ( SCHEDULE NO. 2 )
PARTICULARS AMOUNT
Statutory Reserve
General reserve
Capital reserve
Investment Fluctuation Reserve
Workmen compensation fund
Sinking fund
Surplus ( P/L app. a/c)
Building fund
Depreciation fund
Tax fund
Capital redemption reserve

DEPOSITS ( SCHEDULE NO. 3 )
PARTICULARS AMOUNT
Fixed deposits
Saving deposits
Current account
Recurring deposit
L/C a/c
Other deposits except income tax deposit
BORROWING ( SCHEDULE NO. 4 )
PARTICULARS AMOUNT
Borrowing from RBI
Borrowing from other banks
Borrowing in India or outside in India

OTHER LIABILITIES (SCHEDULE NO. 5 )
PARTICULARS AMOUNT
Bills payable
Outstanding expenses
Unpaid dividend
Incomes received in advance
Interoffice adjustment
Reserve for unexpired discount
CASH IN HAND AND WITH RBI (SCHEDULE NO. 6 )
PARTICULARS AMOUNT
Cash in hand with bank
Balance with RBI

BALANCE WITH OTHER BANKS AND MONEY AT
CALL AND SHORT NOTICE ( SCHEDULE NO. 7 )
PARTICULARS AMOUNT
Balance with other banks
Money at call and short notice
(short term loan given by bank to its
Esteem customers)

INVESTMENTS ( SCHEDULE NO. 8 )
PARTICULARS AMOUNT
Government securities
Bonds
Mutual funds
Equity shares of other companies
Gold etc.
ADVANCES ( SCHEDULE NO. 9 )
PARTICULARS AMOUNT
Term loan
Bank overdraft
Cash credit and bill discount

FIXED ASSETS ( SCHEDULE NO. 10 )
PARTICULARS AMOUNT
Premises
Furniture
Fixtures
Equipments
Land and building
Plant and machinery
motor vehicles
Computers etc.

OTHER ASSETS ( SCHEDULE NO. 11 )
PARTICULARS AMOUNT
Prepaid expenses
Silver
Non-banking asset
Inter branch adjustment
Accrued incomes
Stamps in hand

CONTINGENT LIABILITIES (SCHEDULE NO. 12 )
PARTICULARS AMOUNT
BR/ bills for collection
Forward exchange transactions
Future contracts
Acceptance, endorsement and guarantee
Liability for bill rediscounted
Disputed liabilities
Income tax under appeal
Income tax deposits
Claims not acknowledged as debt
Liability for partly paid investments

INTEREST EARNED ( SCHEDULE NO. 13 )
PARTICULARS AMOUNT
Interest on term loan
Interest on cash credit
Interest on bank overdraft
Discount on bill discounted
Income on investments
Interest in balance with RBI
Any other interest income

OTHER INCOMES ( SCHEDULE NO. 14 )
PARTICULARS AMOUNT
Draft making charges
Commission, exchange and brokerage
Locker rents
Dividends
Profit on exchange transactions
Transfer fees and registration fees
Profit on sale of fixed assets
Less:- loss on sale of fixed assets
Profit on sale of investments
less:- loss on sale of investments
Profit on revaluation of fixes assets or
Investments and miscellaneous incomes

INTEREST EXPANDED ( SCHEDULE NO. 15 )
PARTICULARS AMOUNT
Interest on fixed deposits
Interest on recurring deposits
Interest on saving deposits
Interest on borrowings from RBI and other
banks
Interest on any other deposit

OPERATING EXPENSES ( SCHEDULE NO. 16 )
PARTICULARS AMOUNT’
Rent , rates and taxes
Insurance , salary , director fee ,
Management fee , printing and stationary ,
Audit fee , depreciation , provident fund of
employees,
general expenses, law charges,
Advertisement and publicity , repair and
Maintenance , sundry charges etc .

PROVISIONS AND CONTINGENCIES
PARTICULARS AMOUNT
Bad debts
Provision for doubtful debts
Provision for tax
Provision for contingencies
Provision for depreciation
Other provisions

Explanation of some terms relating to balance sheet
MONEY AT CALL AND SHORT NOTICE :-
This item appears on the assets side of a bank balance sheet and
represents temporary loans to Bill Brokers and other banks . If the loan
is given for one day, it is called ‘money at call’ and if the loan cannot be
called back on demand and will require at least a notice of three days
for calling back , it is called ‘ money at short notice ’ . It also includes
deposits repayable within 10 days or less than 15 days notice lent in the
inter bank call money market . The rate of interest on which money is
lent fluctuate every day , sometimes very sharply ( more than 30 % ) ,
depending on the demand and supply of money .

ADVANCES :-
Advances appear on the Assets side as fourth head and
include loans , cash credits , bank overdrafts and bills
discounted and purchased . Banks generally advance
money to their customers in the form of loans , cash
credits , overdrafts and purchasing and discounting of
bills .
PROVISIONS IN RESPECT OF DOUBTFUL
ADVANCES ARE DEDUCTED FROM ADVANCES TO
THE EXTENT NECESSARY AND THE EXCESS
PROVISION FOR DOUBTFUL DEBTS IS INCLUDED
UNDER “ OTHER LIABILITIES AND PROVISIONS” .

CASH CREDIT :-
It is an arrangement by which the customer is granted the right to
borrow money from time to time upto a certain limit . Cash credit is
usually given on hypothecation or pledge of stock . The bank usually
charges a higher bank interest on the actual amount withdrawn than
that charged on loan because the bank has to keep the amount allowed
as cash credit .
OVERDRAFT :-
This facility is available to a customer who operates a current account
with the bank . This facility is granted to customers who have high
goodwill and need for honest dealings .

LOAN :-
Loan is advance of fixed amount to a customer to be withdrawn in
lump sum by him . Interest is charged on the total amount of the loan
agreed to be paid to a customer whether he uses the full amount of the
loan or not . So , customers prefer to take cash credit and pay interest at
a little higher rate .
DISCOUNTING OF BILLS :-
Discounting of a bill means making the payment of the bill before the
maturity date of the bill . While making payment of the bill , the bank
deducts the discount for the unexpired period for the amount of the bill
discounted . The bank keeps the bill with it till the maturity date and
get its payment for the customer on the due date.

PURCHASING AND DISCOUNTING OF BILLS :-
The bank may purchase or discount clean or
documentary bills at the current rate of interest .
NON-BANKING ASSETS :-
A banking company is not allowed to deal directly or
indirectly in the purchase or sale or barter of goods
except in connection with its legitimate banking business
. But a bank can always lend against the security of
assets . The bank may have to take possession of the
asset given as a security if the loanee fails to repay the
loan .

REBATE ON BILLS DISCOUNTED OR UNEXPIRED
DISCOUNTS :-
This item is like interest received in advance and represents unearned
discounts for those bills which will mature after the closing of the
financial accounts .
JOURNAL ENTERIES FOR REBATE ON BILLS
DISCOUNTED .
PARTICULARS Dr. AMT Cr. AMT
Rebate on bill discounted a/c Dr
To discount earned
Discount earned a/c Dr
To P/L a/c

PARTICULARS Dr. AMT Cr. AMT
Bill discounted a/c Dr.
To customer
To discount earned a/c
Discount earned a/c Dr.
To P/L a/c
To rebate on bill discounted
If the date of bill is not given and months of maturity after close of
year is given, add 3 days of grace to calculate the bill date .

EXAMPLE
Ques . From the following trial balance of Excellent
Bank ltd. Prepare the balance sheet and P/L a/c
making all the necessary provisions . You are required to
provide the following :
1.Provision for taxation Rs 10,00,000
2.Transfer to dividend Equalisation reserve
Rs 3,00,000

Trial balance as on 31-3-2008
Particulars amt . Particulars amt .
(Rs. ‘000’ ) ( Rs. ‘000’ )
Current deposits 45200 investment in govt. securities 45200
Saving bank deposits 14520 investment in shares 4700
Term deposits 37180 interest accrued on invest. 875
Sundry creditors a/c 1455 loans 43800
Debts due to banks secured by bills purchased and discounted 33100
Investments 12200 furniture , fixtures and
Rebate on bills discounted 15 equipment – depreciation 500
Branch adjustment (cr.) 4555 interest paid 1200
Statutory fund 10000 exchange and commission paid 100
Dividend Equalisation fund 2500 payment to employees 2400
Capital 2,00,000 shares of Rs. Directors fees 100
100 each , Rs. 50 per share printing and stationery 400
Paid up 10000 miscellaneous expenses 300
Interest and discount received 5800 furniture and fixture 1000
Exchange and commission 1700 premises 3000
General charges recovered 55 money at call and short notice 1500
P/L A/c bal. as on 1-4-2007 852 property acquired in satisfaction
of claims 50
cash in hand 438 cash with banks 6869

Additional information :-
Current accounts included Rs . 88 , 00 ,000 ( debit balance )
being overdrafts . One of the accounts Rs. 95,000 including
Rs. 7,000 as interest for 2007-2008 is doubtful . During the
year , property acquired in 2005 in satisfaction of defaulted
debt of Rs. 25,000 was sold for Rs. 18,000 . The amount of
Rs. 18,000 was credited to the account no further adjustments
having been made . Bills for collection with the bank are of
Rs.22,10,000 .
Acceptances , endorsements and guarantees of the bank are Rs.
11,68,000 .

Profit and Loss a/c of excellent bank ltd .
for the year ended 31st march , 2008
PARTICULARS S.NO. AMOUNT
INCOME :-
INTEREST EARNED 13 5800
OTHER INCOME 14 1755
TOTAL 7555
EXPENDITURE:-’
INTEREST EXPANDED 15 1300
OPERATING EXPENSES 16 3707
PROVISIONS & CONTINGENCIES 1095
TOTAL 6102
NET PROFIT = 1453

PROFIT AND LOSS APPROPRIATION ACCOUNT
PARTICULARS AMT.
NET PROFIT 1453
PROFIT OF LAST YEAR 852
TOTAL 2,305
STATUTORY RESERVE ( 25% OF 1453) 363
TRANSFER TO DIV. EQUILI. RESRVE 300
PROPASED DIVIDEND 1000
BALANCE CARRIED TO B/S 642
TOTAL 2305

BALANCE SHEET AS ON 31ST MARCH 2008
PARTICULARS S.NO. AMT
CAPITAL 1 10,000
RESERVE AND SURPLUS 2 13805
DEPOSITS 3 105700
BORROWINGS 4 12200
OTHER LIABILITIES AND PROVISIONS 5 7120
TOTAL 148825
CASH AND BANK BALANCE WITH RBI 6 438
BALANCE WITH BANKS AND MONEY AT CALL 7 8369
INVESTMENTS 8 49900
ADVANCES 9 85700
FIXED ASSTS 10 3500
OTHER ASSETS 11 918
TOTAL 148825
CONTINGENT LIABILITIES 3378

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