Chapter-07

Accounting for Banking Companies

Some special rules and provisions relating to banking companies were incorporated in the
Banking Companies of Bangladesh. As a result, banking companies are governed by the
Banking Company Act, 1991. This Act. has been amended several times. A banking
company means the accepting, for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise and withdrawn by Cheque, Draft, and
Order or otherwise.

PREPARATION AND PRESENTATION OF FINAL ACCOUNTS

The final accounts of banking companies include the-

1. Profit and Loss Account/Statement and
2. The Balance Sheet.

Special Items:

1. Slip System of Posting

This is not a system of book keeping, but a method of rapidly posting entries to books kept on
double entry system. In this system, posting is made from slips prepared inside the
organization itself or from slips filled in by its customers. In a banking company, the main
slips are pay in slips, withdrawal slips and cheques and all these slips are filled in by clients
of the bank.

Slip system of posting has following merits & demerits:

a) Merits
i. It is very simple to understand by customers.
ii. It is economical in time and money.
iii. Subsidiary books are avoided as posting is done from slips.
iv. It is easily handled by officer concerned by being small and handy.
v. It ensures the smooth flow of accounting work.
vi. The number of banking transactions is very large. This system can suitably distribute
the work of posting among many people.
b) Demerits
i. There are always a risk of misplacement, loss and destruction of slips by dishonest
employees.
ii. Illiterate depositors cannot write these slips properly.
iii. Books cannot be verified if subsidiary books are not kept.
 iv. There is an over burden on the internal auditors because of checking of different
types of slips.

2. Rebate on Bills Discounted

When a bank discounts a bill of exchange, the full amount of the discount earned is credited
to the Discount Account but some of the bills discounted may not mature for payment by the
close of the year; as a result, the amount of discount in respect of such bills would not have
been earned during the year. On this consideration, the unexpired portion of such discount is
called Rebate on bills discounted and it is carried forward by debiting the Discount Account
and crediting Rebate on Bills Discounted Account. In short rebate on bills discounted means
the unearned amount or discount received for those bills which mature after the date of
closing the final accounts. It is also called unexpired discount or discount received in
advance. The latter account is shown on the liabilities side of the Balance Sheet as income
received which had not accrued before the close of the year. At the commencement of the
period next following, the account is closed off by transfer to the Discount Account. Thus;

a. If it is given only in the Trial Balance: The same will be shown as a liability
and will appear in the liability side of the Balance Sheet.
b. If it is given in adjustment: In that case, the same is deducted from the income
from Interest and Discount in Profit and Loss Account and the same will also
appear in the liability side of the Balance Sheet.

3. Money at call and Short Notice

Money at call and Short Notice 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’. 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.

4. Non-banking Assets
Any asset which does not come in the ordinary course of business of a bank is called non-
banking asset. The bank is not allowed to deal in such assets. But a bank can always lend
against the security of the assets. The bank may have to take possession of the asset given as
security, if the loanee fails to repay the loans. Such asset is a non-banking asset side of the
balance sheet under the head “other asset”. Such assets have to be disposed off within a
period of seven years from the date of acquiring these assets.

Accounting treatment of non-banking asset:

a) Any profit or loss on sale of such asset much be shown in the profit and loss account;
b) Non-banking assets acquired in satisfaction of claims must be disclosed separate item
in balance sheet under the head other assets.
 5. Bills Purchased and Discounted

The bills discounted must remain overdue for a period of at least 12 months i.e. 4 quarters
during the year. Overdue interest should be charged and taken as income unless it is realized.

6. Cash Credit and Overdrafts

Cash credit and overdrafts are treated as Non-performing Assets. It may remain overdue for a
period of 2 quarters. An account should be treated as out of order if the outstanding balance
remains continuously in excess of the sanctioned limit/drawing power.

7. Acceptance and Endorsement

A bank has a more acceptable credit as compared to that of its customers. On this account, it
is often called upon to accept or endorse bills on behalf of its customers. In such a case, the
bank undertakes a liability towards the party which agrees to receive such a bill in payment of
a debt or agreed to discount the bill after the same has been accepted by the bank. As against
this liability, the bank has a corresponding claim against the customer on whose behalf it has
undertaken to be a party to the bill, either as an acceptor or as an endorser. Such liabilities
which are outstanding at the close of the year and the corresponding assets are disclosed as
contingent liability as per the new format. As a safeguard against the customer not being able
to meet the demand of the bank in this respect, usually the bank requires the customer to
deposit a security equivalent to the amount of the bill accepted on his behalf. A record of the
particulars of the bills accepted as well as of the securities collected from the customers is
kept in the Bills Accepted Register. A bank may not treat this book as part of system of its
accounts. In such a case no further record of the transactions is kept until the bill matures for
payment. If the bill, at the end of its term, has to be retired by the bank and the amount cannot
be collected from the customer on demand, the bank reimburses itself by disposing of the
security deposited by the customer.

8. Loans and Advances

Loans and Advances include Bills discounted and purchased, loans, cash credit and overdraft.

9. Bills for Collection

When the bank receives bills receivables from its customers for collection, it keeps them till
maturity. On the date of maturity when bills are collected, customers account is credited with
the amount collected. If some bills remain outstanding, such bills are treated by the banks as
outstanding bills for collection. It is shown as ‘Contingent Liability.

10. Branch Adjustment

 11.Off-balance sheet Items

Off-balance sheet items refer to those assets and liabilities that aren’t shown on a balance
sheet. However, these assets and liabilities still belong to the company though they may not
be directly associated with the company.
Companies use this method of accounting to lessen the impact of ownership of certain assets
and obligations of certain liabilities on their financial statements. The company keeps certain
items off of their balance sheet to present a stronger balance sheet to the investors.

i. Letter of guarantee: A letter of guarantee is a type of contract issued by a bank on

behalf of a customer who has entered a contract to purchase goods from a supplier.
The letter of guarantee lets the supplier know that they will be paid, even if the
customer of the bank defaults.
ii. Bills for collection: A Bill for Collection is the handling of documents (financial
and/or commercial) by banks in accordance with instructions received from the
exporter in order to: Obtain payment or acceptance or Deliver documents against
payment and/or acceptance or, Deliver documents on other terms and conditions.‟
iii. Acceptance & Endorsement: Acceptance/Endorsement Loan is a type of loan in
which the bank accepts or endorses the policy supplied by the exporter so that the
importer may acquire the goods without paying for them immediately. Payment is
made on the policy due date. When a bank endorses the relevant policy, the exporter
can receive immediate payment by having the draft discounted. With payments
guaranteed by the bank, your company has greater flexibility and security in its
foreign trade transactions.
iv. Irrevocable letter of credit: An irrevocable letter of credit (ILOC) is official
correspondence from a bank that guarantees payment for goods or services being
purchased by the individual or entity, referred to as the applicant, which requests the
letter of credit from an issuing bank. An irrevocable letter of credit cannot be
canceled, nor in any way modified, except with the explicit agreement of all parties
involved: the buyer, the seller and the issuing bank. For example, the issuing bank
does not have the authority by itself to change any of the terms of an ILOC once it is
issued. Although an ILOC is irrevocable while it is in force, generally the time period,
during which a proposed transaction is expected to be completed, an ILOC expires at
a specified point in time noted in the letter of credit.
v. Contingent Liabilities
A contingent liability is one that is not an actual liability but which will become an
actual one on the happening of some event which is uncertain. Thus such liabilities
have two characteristics: a) Uncertainty as to whether the amount will be payable at
all and b) Uncertainty about the amount involved.

12. Statutory Reserve

As per banking companies Act of Bangladesh every bank must be transfer every year
at least 20% from its profit before taxes to a Statutory reserve (Reserve fund) until
 the amount of the reserve together with the share premium Account is equal to the
paid up capital.
Note: Students shall ensure that 20% of the profit earned during current year is
transferred as Statutory Reserve even if the question is silent on the issue in the
examination question.

Practical Problems:
Problem-1:

From the following balances of the Arab Bangladesh Bank Ltd. as on 31st December 2012,
prepare the Balance sheet as on 31st December, 2012 and Profit and Loss account for the year
ended:

Tk. Tk.
Paid up capital 15,00,000 Salaries 52,150
Profit & Loss A/c 40,333 Buildings (coat Tk. 3
laks) 2,05,000
Current Accounts 34,12,829 Law charges 1,650
Fixed deposits 38,95,554 Cash in hand and
with banks 8,16,324
Savings Bank A/c 20,68,000 Cash with other
banks 12,05,125
Directors Fee 2,980 Investment at cost 8,78,126
Auditors Fee 3,000 Loans, cash credit
and overdraft 70,20,000
Furniture (cost Tk. 50,000) 37,280 Bills discounted 14,00,520
Interest & Discount 2,00,223 Unexpired insurance 625
Commission & Exchange 1,12,000 Statutory Reserve
fund 60,000
Investment Reserve Fund 35,000 Reserve fund 2,05,000
Branch Adj. (Cr.) 66,894 Rent, Rates and taxes 8,507
Postage 2,156 Provident fund
contribution 15,000
Printing & Stationery 2,390 Contingency Reserve 55,000

i) The bank has accepted Tk. 2,00,000 Bill on behalf of customers, the securities lodged
against them amounted to Tk. 3,00,000. ii) Provide Tk. 7,000 on Buildings and Tk. 4,500 on
furniture for depreciation. iii) The market value of investments on 31 st December, 2012
amounted Tk. 8,50,000. iv) Rebate on bills discounted on 31st December, 2012, Tk. 5,900.
Solution to Problem 1:

W-1: Interest and Discount credited to Profit and Loss A/C

Tk.
Interest and Discount 2,00,223
Less: Rebate on Bills Discounted 5,900
1,94,323

The Arab Bangladesh Bank Ltd.

Profit and Loss Account
For the year ended December 31, 2012

Particulars Tk. Tk.

Interest Income (W-1) 1,94,323
Interest paid on deposits & borrowings (0)
Net Interest Income 1,94,323
Commission and Exchange 1,12,000
Total Operating Income 3,06,323
Salaries 52,150
Provident Fund Contribution 15,000
Directors Fees 2,980
Rent 8,507
Law Charges 1,650
Postages 2,156
Auditors Fees 3,000
Depreciation expense:
Furniture- 4,500
Building - 7,000 11500
Printing & Stationery 2,390
Total Operating Expenses (99,333)
Profit before provision 2,06,990
Provision for bad debts ……0......
Total profit before tax 2,06,990
Provision for taxation -----0----
Net profit after taxation 2,06,990
Appropriations:
Statutory Reserve (20% on tk. 2,06,990) 41,398
Retained Surplus 1,65,592
Earnings per share
 The Arab Bangladesh Bank Ltd.
Balance Sheet
As at 31 December 2012

PROPERTY AND ASSETS TK. TK.

Cash
Cash in hand 8,16,324
Balance with Bangladesh Bank and its agent banks 12,05,125 20,21,449
Balance with other banks and financial institutions nil
Money at call on short notice nil
Investments:
Government 0
Others 8,78,126 8,78,126
Loans and Advances
Loans, Cash Credit, Overdrafts etc 70,20,000
Bills purchased and discounted 14,00,520 84,20,520
Fixed assets including premises, furniture and fixtures
Building 3,00,000
Less: Accumulated Depreciation (95000+7000) = 1,02,000 1,98,000
Furniture 50,000
Less: Accumulated Depreciation (12,720+4500) = 17,220 32,780 2,30,780
Other assets
Unexpired Insurance 625
Non-banking assets nil
Total Assets: 1,15,51,500
LIABILITIES AND CAPITAL
Liabilities:
Borrowings from other banks, financial institutions and agents nil
Deposits and other accounts:
Current Accounts and other accounts 34,12,829
Bills payable nil
Savings Bank Deposits 20,68,000
Fixed Deposits 38,95,554
Bearer Certificates of Deposit nil
Other Deposits nil 93,76,383
Other liabilities:
Branch adjustment account 66,894
Rebate on bills discounted 5,900
Investment fluctuation fund 35,000 1,07,794
Total Liabilities 94,84,177
Capital/Shareholders’ Equity
Paid up Capital 15,00,000
Statutory Reserve Fund 60,000
Add: New Reserve 41,398
1,01,398
Reserve Fund 2,05,000 3,06,398
Contingency Reserve 55,000
Current Year Surplus in Profit and Loss Account 1,65,592
Previous Year Surplus in Profit and Loss Account 40,333 2,05,925
Total Shareholders’ Equity 20,67,323
Total Liabilities and Shareholders’ Equity 1,15,51,500

Note: It is assumed that fluctuation of investment is temporary. So, market price of

investment is not considered.

OFF-BALANCE SHEET ITEMS

Particulars Tk.
Contingent Liabilities:
Acceptances on behalf of customers 2,00,000

Problem-2:
From the above particulars for Liverpool Bank Ltd. prepare Profit and Loss Statement for the
year ended 31st December 2012 and a Balance Sheet on that date as per the 1 st Schedule of
Banking Companies Act-1991:

Particulars Debit (Tk.) Particulars Credit(Tk.)

Cash in hand 3,20,000 Capital 25,00,000
Cash with Bangladesh 8,50,000 Reserve fund 10,00,000
bank
Interest paid 3,96,000 Interest & discount 6,55,000
Salaries & allowances 1,22,000 Income from dividend 2,75,000
P.F. Contribution 8,500 Exchange & 1,35,500
commission
Directors fees 12,500 Brokerages 65,000
Management expenses 50,000 Share transfer fees 2,500
Bills discounted 8,00,000 Investment fluctuation 55,000
fund
Premises 5,00,000 Contingency reserve 82,500
Furniture 66,000 Deposits & other 71,60,500
accounts
Investment 25,00,000 Provident fund 75,000
P.F. Investment 75,000
Loans & Cash
Creditors 40,06,000
Overdraft 23,00,000
1,20,06,000 1,20,06,000

Others information:
 i. Rebate on bills discounted Tk. 12,500.
ii. Management expenses outstanding Tk. 9,600.
iii. Interest accrued but not received Tk. 17,500.
iv. Depreciation on premises Tk. 25,000 and Furniture Tk. 6,000.
v. Investment is to be shown in market price which is Tk. 24, 50,000.
vi. The bank has accepted bills on behalf of customers Tk. 2, 20,000.

Problem-3:

From the following balances of the Loyads Bank Ltd. prepare Profit and Loss Statement for
the year ended 31st December 2011 and a Statement of Financial Position as on that date:

Particulars Taka
Share capital (6,000 shares of Tk. 100 each, Tk. 50 paid-up) 3,00,000
Interest and discount received 8,50,000
Share Premium account 1,00,000
Balances with Bangladesh bank 14,50,000
Commission, brokerages etc. received 2,80,000
Balance with other bank 5,50,000
Interest paid on deposits 3,50,000
Money at call and short notice 2,50,000
Savings bank deposits 20,10,000
Rents, rates and insurance premium paid 25,000
Current account, contingency account etc. 45,00,000
Law charges paid 10,000
Shares and debentures purchased (investment) 3,65,000
Miscellaneous receipts from constituents 20,000
Cash in hand 82,000
General reserve fund 1,90,000
Rent received from tenants 50,000
Fixed Deposits 60,00,000
Salaries allowances etc. 2,75,000
Bills discounted and purchased-loans and advances 8,50,000
Postages, telegrams, and stamps 65,000
Bills payable 7,00,000
Government securities purchased 23,00,000
Director’s fees and allowances 28,000
Auditors fees 12,000
Bank premises 16,50,000
Unclaimed dividend 15,000
Depreciation 50,000
Rebate on bills discounted 35,000
 Miscellaneous expenses 25,000
Repairs to bank premises 74,000
Stationery, printing and advertising 46,000
Profit and loss account (Cr.) 50,000
Loans and advances:
Unclassified 30,00,000
Substandard 20,00,000
Doubtful 8,00,000
Bad 2,23,000
Branch adjustment (Dr.) 5,95,000
Interest accrued on investment 25,000

Additional information:
i. Provide for taxation Tk. 20,000;
ii. Dividend declared @ 10 for the year;
iii. The management has decided to create a specified provision for Tk. 50,000 and
general provision for unclassified advances Tk. 30,000;
iv. Transfer to general reserve Tk. 20,000;
v. Transfer to investment fluctuation fund Tk. 20,000;
vi. Bills for collection Tk. 5,00,000; acceptance endorsement Tk. 10,00,000;
vii. Outstanding salaries Tk. 10,000;
viii. Prepaid law charges Tk. 2,000.
Problem-4:
The following are the balances of Bengal Bank Ltd. at December, 2006.
Debit Credit
(Tk.) (Tk.)
Share capital (88,750 shares of Tk.10 each) 8,87,500
Reserve 5,00,000
Current accounts 25,81,343
Deposit accounts 6,85,135
Acceptance and endorsement for customers 3,40,216
Reserve for final dividend 56,005
Profit & Loss account (01.01.05) 1,28,139
Interest received 1,41,010
Discount charges 38,41
Commission charges 1,54,859
Dividend received less tax 86,251
Cash in hand 3,41,644
Cash with Bangladesh bank 6,21,858
Money at call and short notice 2,79,416
Bills discounted 8,33,483
Advances to customers 13,42,120
Liability of customers for
acceptance & endorsement 3,40,216
Bank premises 2,60,000
 Investment in shares of
Joint stock companies (at cost) 2,48,000
Investments in national defence bonds (at cost) 1,68,000
Balances with other banks 2,24,220
Government securities (at cost) 6,18,358
Interest paid 42,048
General expenses 91,363
Salaries & allowances 1,00,000
Interim dividend 32,188
Final dividend 56,005

55,98,919 55,98,919

You are required to prepare a profit and loss account for the year ended 31 st December, 2006
and the Balance sheet as at that date after taking into account the following adjustments:
i. Unexpired discounts amounted to Tk. 4,200, while interest and dividends accrued
and outstanding were Tk. 1, 23,395.
ii. Salaries include Tk. 10,000 paid to general expenses.
iii. Provide Tk. 17, 500 for depreciation on Bank premises.
iv. The market value of shares of Joint Stock Companies was Tk. 2, 55,000.
v. Provide for bad debts to the extent of Tk. 5,500.

Problem-5:

From the following trial balance of National Bank Ltd., prepare the balance sheet as on 31st
December, 2009 and profit and loss account for the year ended 31st December, 2009:

Particulars Tk.
Share Capital: Authorized and Issued 10,000 shares
of tk. 100 each, Tk. 90 paid 5,00,000
Reserve fund 3,50,000
Fixed deposit accounts 9,50,000
Savings bank deposits 30,00,000
Current accounts 80,00,000
Money at call & short notice 3,00,000
Acceptance and endorsement on behalf of customers 2,00,000
Investment (at cost) 30,00,000
Interest accrued and paid 2,00,000
Salary (including salary to general manager Tk.
24000 and directors fees tk. 5000 80,000
Non banking assets acquired in satisfaction of claims 50,000
Rent paid 20,000
General expenses 15,000
Stationery 8,000
 Auditors fees 2,000
Profit and loss account (credit) on 1st January, 2006 2,10,000
Dividend paid for 2005 50,000
Premises (Less accumulated depreciation up to 12,00,000
December, 2005 Tk. 100000)
Cash in hand 60,000
Cash with Bangladesh Bank 15,00,000
Cash with other banks 13,00,000
Borrowed from banks 7,00,000
Interest and discounts 6,50,000
Commission, exchange, brokerage etc. 15,000
Branch adjustment (credit) 50,000
Bills discounted and purchased 5,00,000
Bills payable 8,00,000
Loans, cash credits and overdrafts 70,00,000
Unclaimed dividends 30,000
Sundry creditors 30,000
Bills for collection 1,40,000

Additional Information:
i. Rebate on bills discounted and purchased for unexpired terms amounted to Tk. 5,000.
ii. A provision for doubtful debts amounting to Tk. 25,000 is required.
iii. The market value of investments amounted to Tk. 34, 50,100.
iv. Provide for taxation Tk. 1, 00,000.
v. The directors recommended 15% dividend for the year 2006.
vi. Allow 5% depreciation on premises on original cost.

Problem-06:
From the following balances of the Arab Bangladesh Bank Ltd. as at 31 st December 2009,
prepare a profit and loss account and a balance sheet.
The authorized capital consists of 20,000 shares of Tk. 100 each, Tk. 50 per share called up
and paid. Provide Tk. 8,000 for depreciation on buildings, Tk. 3,500 on furniture, Tk. 25,000
for investment reserve fund, Tk. 20,000 further by way of bad debts reserve. The rebate on
bills not due amounted to Tk. 15,000. An-ad-interim dividend at the rate of 7% per annum
was paid for half year ended 30th June 2009.

Particulars Tk.
Paid up capital 10,00,000
Buildings (cost Tk. 300000) 2,05,000
Profit & loss appropriation account (1st January 2009) 40,000
Advertising 1,700
Investment reserve fund 35,000
Bills discounted 9,00,000
Loans to customers 45,00,000
 Liability for expenses 46,000
Cash credit & overdrafts 30,00,000
Current account 34,13,000
Cash with other banks 16,05,000
Directors & auditors fees 5,900
Cash at head office & branches 4,16,000
Furniture & fixtures (cost Tk. 50000) 37,000
Fixed deposits 58,99,000
Interest 3,50,000
Discount received 67,000
Investment cost 2,78,000
Postage & telegrams 2,000
Unexpired insurance 500
Printing & stationery 3,000
Stamps on hand 200
Rent, taxes & insurance 8,700
Reserve fund 2,65,000
Salaries 57,000
Reserve for bad debts 40,000
Interest on deposits 1,00,000

Out of the total debts for Tk. 5, 18,000 were considered doubtful, and the balance was
considered good, of which debts amounting to Tk. 43, 50,000 were fully secured, and
amounting to Tk. 6,99,000 the bank held guarantees for one or more persons over and above
the personal securities of debtors. Debts due by directors jointly with other persons amounted
to Tk. 2,00,000. For the balance the bank held no other security except the personal security
of the debtor.

Solution-06:

The Arab Bangladesh Bank Ltd.

Profit and Loss Account
For the Year ended 31st December 2009

Particulars Tk. Tk.

Interest Income 3,50,000
Interest paid on deposits & borrowings (1,00,000)
Net Interest Income 2,50,000
Discount income (67,000- 15,000) 52,000
Total Operating Income 3,02,000
Salaries 57,000
Provident Fund Contribution -
 Directors Fees and auditors fee 5,900
Rent, Taxes and Insurance 8,700
Law Charges
Postages and telegrams 2,000
Advertising 1,700
Depreciation expense:
Furniture- 8000
Building - 3500 11,500
Printing & Stationery 3,000
Total Operating Expenses (89,800)
Profit before provision 2,12,200
Provision for bad debts 20,000
Investment reserve 25,000 45000
Total profit before tax 1,67,200
Provision for taxation -----0----
Net profit after taxation 1,67,200
Profit available for Appropriation:
Last Year profit 40,000
Current Year profit 1,67,200 2,07200
Statutory Reserve (20% on tk. 1,67,200) 33,440
Interim Dividend 35,000 (68,440)
Retained Surplus 1,38,760
Earnings per share

The Arab Bangladesh Bank Ltd.

Balance Sheet
As at 31st December 2009

PROPERTY AND ASSETS TK. TK.

Cash
Cash in hand
Cash at head office and Branches 4,16,000
Balance with Bangladesh Bank and its agent banks
Balance with other banks and financial institutions 16,05,000
Money at call on short notice Nil
Investments:
Government 0
Others 2,78,000 2,78,000
Loans and Advances
Loans to customers 45,00,000
Cash Credit, Overdrafts etc 30,00,000
Bills purchased and discounted 9,00,000 84,00,000
Fixed assets including premises, furniture and fixtures
Building 3,00,000
Less: Accumulated Depreciation (1,03,000) 1,97,000
Furniture 50,000
Less: Accumulated Depreciation (16,500) 33,500 2,30,500
Other assets
Unexpired Insurance 500
Non-banking assets 200
Stamps in hand
Total Assets: 1,09,30,200
LIABILITIES AND CAPITAL
Liabilities:
Borrowings from other banks, financial institutions and agents nil
Deposits and other accounts:
Current Accounts and other accounts 34,13,000
Bills payable nil
Savings Bank Deposits nil
Fixed Deposits 58,99,000
Bearer Certificates of Deposit nil
Other Deposits nil 93,12,000
Other liabilities:
Branch adjustment account
Liabilities for Expenses 46,000
Rebate on bills discounted 15,000
Investment fluctuation fund (35,000+25,000) 60,000
Reserve for Bad debts (40,000+20,000) 60,000 1,81,000
Total Liabilities 94,93,000
Capital/Shareholders’ Equity
Paid up Capital 10,00,000
Statutory Reserve Fund (2,65,000+33,440) 2,98,440
Profit and Loss Account 1,38,760
Total Shareholders’ Equity 14,37,200
Total Liabilities and Shareholders’ Equity 1,09,30,200

Calculation of Total Debts

Taka
Loans and Advances 45,00,000
Cash Credit 30,00,000
Bills Discount 9,00,000
Total Debts 84,00,000
Less: Doubtful Debts (40,000+20,000) 60,0000
83,40,000

Schedule of Particulars of loan and Advances

Sl. Particulars Taka

No.
1 Loans considered good in respect of which the banking company is fully 43,50,000
secured;
2 Loans considered good against which the banking company holds no 26,33,000
security other than the debtor's personal guarantee; (B/F)
3 Loans considered good secured by the personal undertakings of one or 6,99,000
more parties in addition to the personal guarantee of the debtor;
4 Loans adversely classified; provision not maintained there against; 4,58,000
(5,18,000 – 60,000)
5 Loans due by directors or officers of the banking company or any of 2,00,000
these either separately or jointly with any other persons.
6 Loans due from companies or firms in which the directors of the banking -
company have interests as directors, partners or managing agents or in
case of private companies as members
7 Maximum total amount of advance including temporary advance made at -
any time during the year to directors or managers or officers of the
banking companies or any of them either separately or jointly with any
other person;
8 Maximum total amount of advances, including temporary advances -
granted during the year to the companies or firms in which the directors
of the banking company have interests as directors, partners or managing
agents or in the case of private companies as members;
9 Due from banking companies; -
10 Amount of classified loan on which interest has not been charged, should -
be mentioned as follows:
a. Decrease/increase in provision, amount of loan written off and amount -
realised against loan previously written off;
b. Amount of provision kept against loan classified as 'bad/loss' on the date -
of preparing the balance sheet;
c. Interest creditable to the Interest Suspense a/c; -
11 Cumulative amount of the written off loan and the amount written off -
during the current year should be shown separately. The amount of
written off loan for which lawsuit has been filed should also be
mentioned.
Total 83,40,000

P9roblem-07:

The following trial balances of Habib Bank Ltd. as on 31st December, 2009:

Particulars Debit (Tk.) Credit (Tk.)

Share capital account (authorized and paid-up) 5,00,000
10000 shares of Tk. 100 each, Tk. 50 paid-up
Reserve fund 8,00,000
Fixed deposit account 30,00,000
Savings bank deposits 20,00,000
Current accounts and unadjusted contingencies 1,10,00,000
Money at call and short notice-in Bangladesh 1,00,000
Money at call and short notice-outside 50,000
Bills discounted and purchased-in Bangladesh 4,50,000
Bills discounted and purchased- outside 1,00,000
Investment at cost:
Government securities 50,00,000
Ordinary share-fully paid 5,00,000
Preference share-fully paid 1,00,000
Preference share-partly paid (calls to be made 20000) 50,000
Debentures 2,00,000
Gold 12,00,000
Pakistan Government Securities 5,00,000
Reserve for Building 5,00,000
Interest and discount 6,50,000
Commission brokerage and exchange 50,000
Rents 20,000
Interest on deposits, current accounts etc. 2,00,000
Salaries (Tk. 30000 to General Manager) 2,15,000
Postage and Telegrams 5,000
Rent, rates, insurance etc. 11,000
Legal charges 500
Director’s fees 2,500
Auditor’s fees 1,500
Miscellaneous receipts 61000
Premises at cost 50,00,000
Additions to premises 10,00,000
Depreciation fund on premises 40,00,000
Repair to premises 60,000
Stationery, printing and advertisement 72,000
Stamps on hand 3,000
Other expenses of the business 15,000
Cash in hand 62,000
Cash with Bangladesh Bank 12,00,000
Cash with Pakistan State Bank 5,00,000
Cash with other Banks in Bangladesh 6,00,000
Unclaimed Dividends 12,000
Unexpired Discounts 25,000
Loans, advances, overdrafts and cash credits:
In Bangladesh 50,00,000
In Pakistan 8,00,000
Branch Adjustment 9,00,000
Silver 1,00,000
Advance payment of tax 60,500
Interest accrued on investments 1,25,000
Interim dividend on share capital 25,000
 Non-banking assets acquired in satisfaction of claims 10,000
Borrowed from Banks in Bangladesh 1,25,000
Borrowed from Banks in Pakistan 15,000
Bills payable 10,00,000
Profit and Loss Account 1,50,000
Dividend equalization fund 3,00,000
2,42,18,000 2,42,18,000

The bank had bills for collection Tk. 150000 including Tk. 10000 in Pakistan and acceptance
and endorsements Tk. 200000 on December 31, 2005 for its constituents. The directors
decided to reserve Tk. 1000 more for unexplored discounts. Bonus to staff to be provided Tk.
42000 including Tk. 5000 to general manager. The directors decided to transfer reserve for
building to depreciation fund account as new premises have been collected. Out of loans to
clients in Pakistan, a loan to the extent of Tk. 5000 is considered bad and the directors have
passed a resolution to write it off. All other Loans and Debts are considered good.
You are required to prepare profit and loss account and balance sheet as at 31st December,
2009.

Problem-08:

From the following particulars of Dhaka City Bank Ltd. prepare the balance sheet as on 31 st
December, 2009 and profit and loss account for the year ended December 31, 2009:

Particulars Tk.
Borrowing from other banks 12,00,000
Bills receivable for collection 12,00,000
Customer’s liability for acceptances 21,06,800
Rebate on bills discounted 4,000
Branch adjustment (credit) 45,000
Reserve Fund 13,00,000
Capital: 20000 shares of tk. 100 each 20,00,000
Interest and discount received 6,50,000
Exchange and commission (credit) 1,80,000
Profit and Loss Account balance on 1.1.2006 1,90,000
Cash in hand 6,62,050
Money at call and short notice 2,50,000
Investments (cost) 50,00,000
Interest accrued on investment 47,050
Cash credit and loans 50,41,000
Bills purchased and discounted 24,00,900
Furniture, fixture and equipment 50,000
Repairs 40,000
Interest paid 1,40,000
 Exchange and commission paid 30,000
Salaries 2,30,000
Directors’ fees and remuneration 5,000
Stationery and advertisements 20,000
Miscellaneous expenses 50,000
Land and buildings 3,60,000
Current deposits 35,00,000
Savings bank accounts 24,50,000
Fixed and time deposits 37,67,000
Sundry creditors account 50,000

Others Information:
i. Provide for depreciation on building Tk. 10,000. Depreciation up to the last year is
Tk. 90,000.
ii. Provide Tk. 10,000 for doubtful debts.
iii. Transfer Tk. 50,000 to reserve fund and provide Tk. 10,000 for income tax
iv. A dividend of 5% was declared for the year 2006 and
v. The market value of investment is Tk. 49,50,000.

Solution:
Solution to Problem 1:

W-1: Interest and Discount credited to Profit and Loss A/C

Tk.
Interest and Discount 2,00,223
Less: Rebate on Bills Discounted 5,900
1,94,323

The Arab Bangladesh Bank Ltd.

Profit and Loss Account
For the year ended December 31, 2012

Particulars Tk. Tk.

Interest Income (W-1) 1,94,323
Interest paid on deposits & borrowings (0)
Net Interest Income 1,94,323
Commission and Exchange 1,12,000
Total Operating Income 3,06,323
Salaries 52,150
Provident Fund Contribution 15,000
Directors Fees 2,980
Rent 8,507
 Law Charges 1,650
Postages 2,156
Auditors Fees 3,000
Depreciation expense:
Furniture- 4,500
Building - 7,000 11500
Printing & Stationery 2,390
Total Operating Expenses (99,333)
Profit before provision 2,06,990
Provision for bad debts ……0......
Total profit before tax 2,06,990
Provision for taxation -----0----
Net profit after taxation 2,06,990
Appropriations:
Statutory Reserve (20% on tk. 2,06,990) 41,398
Retained Surplus 1,65,592
Earnings per share

The Arab Bangladesh Bank Ltd.

Balance Sheet
As at 31 December 2012

PROPERTY AND ASSETS TK. TK.

Cash
Cash in hand 8,16,324
Balance with Bangladesh Bank and its agent banks 12,05,125 20,21,449
Balance with other banks and financial institutions nil
Money at call on short notice nil
Investments:
Government 0
Others 8,78,126 8,78,126
Loans and Advances
Loans, Cash Credit, Overdrafts etc 70,20,000
Bills purchased and discounted 14,00,520 84,20,520
Fixed assets including premises, furniture and fixtures
Building 2,05,000
Less: Accumulated Depreciation (7,000) 1,98,000
Furniture 37,280
Less: Accumulated Depreciation (4,500) 32,780 2,30,780
Other assets
Unexpired Insurance 625
Non-banking assets nil
Total Assets: 1,15,51,500
LIABILITIES AND CAPITAL
Liabilities:
Borrowings from other banks, financial institutions and agents nil
Deposits and other accounts:
Current Accounts and other accounts 34,12,829
Bills payable nil
Savings Bank Deposits 20,68,000
Fixed Deposits 38,95,554
Bearer Certificates of Deposit nil
Other Deposits nil 93,76,383
Other liabilities:
Branch adjustment account 66,894
Rebate on bills discounted 5,900
Investment fluctuation fund 35,000 1,07,794
Total Liabilities 94,84,177
Capital/Shareholders’ Equity
Paid up Capital 15,00,000
Statutory Reserve Fund 60,000
Reserve Fund 2,05,000
Add: New Reserve 41,398 3,06,398
Contingency Reserve 55,000
Current Year Surplus in Profit and Loss Account 1,65,592
Previous Year Surplus in Profit and Loss Account 40,333 2,05,925
Total Shareholders’ Equity 20,67,323
Total Liabilities and Shareholders’ Equity 1,15,51,500

OFF-BALANCE SHEET ITEMS

Particulars Tk.
Contingent Liabilities:
Acceptances on behalf of customers 2,00,000

Solution to Problem 3:

Loyads Bank Ltd.

Profit and Loss Account
For the year ended December 31, 2011
Particulars Tk. Tk.
Interest Income (Interest and discount received) 8,50,000
Interest paid on deposits & borrowings (3,50,000)
Net Interest Income 5,00,000
Commission, exchange and brokerage 2,80,000
Rent received from sub-tenant 50,000
Miscellaneous receipts 20,000
Total other incomes 3,50,000
Total Operating Income 8,50,000
Salaries & allowances paid 2,75,000
Add: outstanding 10000 2,85,000
Rent, rates and insurance paid 25,000
Law charges paid 10,000
Less: prepaid 2,000 8,000
Postage, telegram and stamps 65,000
Auditor’s fees 12,000
Stationery, printing and advertising 46,000
Directors fees and allowances 28,000
Depreciation 50,000
Repairs to bank premise 74,000
Miscellaneous expenses 25,000
Total Operating Expenses (6,18,000)
Profit before provision 2,32,000
Provision for loans:
Special 50,000
General 30,000 80,000
Provision for investment 20,000
Other provision (provision for other assets) nil (1,00,000)
Total profit before tax 1,32,000
Provision for taxation (20,000)
Net profit after taxation 1,12,000
Appropriations:
Statutory Reserve (20% on tk. 1,12,000) 22,400
General Reserve 10,000
Dividend declared 30,000 (62,400)
Retained Surplus 49,600
Earnings per share

Loyads Bank Ltd.

Balance Sheet
As at 31 December 2011

PROPERTY AND ASSETS TK. TK.

Cash
Cash in hand 82,000
Balance with Bangladesh Bank and its agent banks 14,50,000 15,32,000
Balance with other banks and financial institutions
In Bangladesh 5,50,000
Outside Bangladesh -----0----- 5,50,000
Money at call on short notice 2,50,000
Investments:
Government 23,00,000
Others 3,65,000 26,65,000
Loans and Advances
Loans, Cash Credit, Overdrafts etc:
Unclassified 30,00,000
Substandard 20,00,000
Doubtful 8,00,000
Bad 2,23,000 60,23,000
Bills purchased and discounted 8,50,000 68,73,000
Fixed assets including premises, furniture and fixtures
Bank premises 16,50,000
Other assets
Interest accrued on investment 25,000
Branch adjustment 5,95,000

Prepaid law charges 2,000 6,22,000

Non-banking assets nil
Total Assets 1,41,42,000
LIABILITIES AND CAPITAL
Liabilities:
Borrowings from other banks, financial institutions and agents nil
Deposits and other accounts:
Current Accounts and other accounts 45,00,000
Bills payable 7,00,000
Savings Bank Deposits 20,10,000
Fixed Deposits 60,00,000 1,32,10,000
Other liabilities
Unclaimed dividend 15,000
Unexpired discount 35,000
Outstanding salaries 10,000
Dividend declared 30,000
Provision for taxation 20,000
Provision for Loans:
Specific provision 50,000
General provision 30,000
Investment fluctuation fund/provision 20,000 1,00,000 2,10,000
Total Liabilities: 1,34,20,000
Capital/Shareholders’ Equity
Paid up Capital 3,00,000
Statutory Reserve 22,400
Share premium 1,00,000
General Reserve 1,90,000
Add: Transferred from profit 10,000 2,00,000
Current Year Surplus in Profit and Loss Account 49,600
Previous Year Surplus in Profit and Loss Account 50,000 99,600
Total Shareholders’ Equity 7,22,000
Total Liabilities and Shareholders’ Equity 1,41,42,000

OFF-BALANCE SHEET ITEMS

Particulars Tk.
Contingent Liabilities:
Acceptances & Endorsements 10,00,000
Bills for Collection 5,00,000
Total Off-Balance Sheet items including contingent liabilities: 15,00,000

Solution to Problem 4:

Bengal Bank Ltd.

Profit and Loss Account
For the year ended December 31, 2006
Particulars Tk. Tk.
Interest Income (note-01) 260205
Interest paid on deposits & borrowings (42048)
Net Interest Income 218157
Commission received 154859
Discount received 38461
Dividend received 86251
Total other incomes 279571
Total Operating Income 497728
Salaries & allowances 100000
General expenses (10000) 90000
General expenses 91363
Add: Additional 10000 101363
Depreciation on premises 17500
Total Operating Expenses (208863)
Profit before provision 288865
Provision for bad debts (5500)
Total profit before tax 283365
Provision for taxation -----0----
Net profit after taxation 283365
Appropriations:
Statutory Reserve (20% on tk. 283365) 56673
Interim Dividend 32188 (88861)
Retained Surplus 194504
Earnings per share

Note: 01
Tk.
Interest received 141010
Add: Outstanding interest 123395
264405
Less: Rebate on bills discounted (4200)
Total Interest Income 260205

Bengal Bank Ltd.

Balance Sheet
As at 31 December 2006

PROPERTY AND ASSETS TK. TK.

Cash
Cash in hand 341644
Balance with Bangladesh Bank and its agent banks 621858 963502
Balance with other banks and financial institutions
In Bangladesh 224220
Outside Bangladesh ---0----- 224220
Money at call on short notice 279416
Investments:
Government:
In National Bonds 168000
In Government Securities 618358 786358
Others:
In shares 248000 1034358
Loans and Advances
Loans, Cash Credit, Overdrafts etc 1342120
Bills purchased and discounted 833483 2175603
Fixed assets including premises, furniture and fixtures
Premises 260000
Less: Depreciation (17500) 242500
Other assets
Interest & dividend accrued 123395
Non-banking assets nil
Total Assets: 5042994
LIABILITIES AND CAPITAL
Liabilities:
Borrowings from other banks, financial institutions and agents Nil
Deposits and other accounts:
Deposit Account 685135
Current Account 2581343 3266478
Other liabilities
Rebate on bills discounted 4200
Provision for bad debts 5500 9700
Total Liabilities: 3276178
Capital/Shareholders’ Equity
Paid up Capital 887500
Statutory Reserve 500000
Add: New reserve 56673 555573
Reserve for Final Dividend 56005
Less: Dividend paid (56005) 0

Current Year Surplus in Profit and Loss Account 194504

Add: Previous Year Surplus in Profit and Loss Account 128189 322643
Total Shareholders’ Equity 1766816
Total Liabilities and Shareholders’ Equity 5042994

OFF-BALANCE SHEET ITEMS

Particulars Tk.
Contingent Liabilities:
Acceptances & Endorsements 340218