Top 7 Accounting Policies for Banking Companies

The following points highlight the top seven accounting policies for banking companies. The policies are: 1. General 2. Transactions Involving Foreign Exchange 3. Investments 4. Advances 5. Fixed Assets 6. Staff Benefits 7. Net Profit.

General:

The accompanying financial statements have been prepared on the historical cost basis and conform to the statutory provisions and practices prevailing in the country.

Transactions Involving Foreign Exchange:

Monetary assets and liabilities have been translated at the exchange rate prevailing at the close of the year. Non-monetary assets have been carried in the books at the historical cost. Income and expenditure items in respect of the Indian branches have been translated at the exchange rates ruling on the date of the transaction and in respect of overseas branches at the exchange rates prevailing at the close of the year.

Profit or loss on pending forward contracts has been accounted for.

Investments:

Investments in Government and other approved securities in India are valued at the lower of cost or market value.

Investment in subsidiary companies and in some companies (i.e. companies in which at least 25% of the share capital) have been accounted for on the historical cost basis.

All other investments are valued at the lower of cost or market value.

Advances:

(a) Provisions for doubtful advances have been made to the satisfaction of the auditors:-

(i) in respect of the identified advances, based on a periodical review of advances and after taking into account the portion of advance guaranteed by the Deposit Insurance and Credit Guarantee Corporation and similar statutory bodies.

(ii) in respect of general advances as a percentage of total advances taking into account guidelines issued by the Government of India and the Reserve Bank of India.

(b) Provisions in respect of doubtful advances have been deducted from advances to the extent necessary and the excess has been includes under “Other liabilities and provisions”.

(c) Provisions have been made on a gross basis. Tax relief which will be available when the advance is written off will be accounted for in the year of write off.

Fixed Assets:

(a) Premises and other fixed assets have been accounted for at their historical cost. Premises which have been revalued are accounted for at the values determined on the basis of such revaluation made by professional value’s. Profit arising on revolutions has been credited to Capital Reserve.

(b) Depreciation has been provided for on the straight line/diminishing balance method.

(c) In respect of revalued assets, depreciation is provided for on the revalued figure and an amount equal to the additional depreciation consequent on revaluation is transferred annually from the Capital Reserve to the General Reserve/Profit and Loss Account.

Staff Benefits:

Provisions for gratuity/pension benefits to staff has been made on an accrual/cash basis. Separate funds for gratuity/pension have been created.

Net Profit:

(a) The net profit disclosed in the profit and loss account is after

(i) Provisions for taxes on income in accordance with statutory requirements,

(ii) Provision for doubtful advances,

(iii) Adjustments to the value of “current investments” in Government and other approved securities in India valued at lower of cost or market value,

(iv) Transfers to contingency funds,

(v) Other usual or necessary provisions.

(b) Contingency funds have been grouped in the Balance Sheet under the head “Other Liabilities and Provisions”.