Balance Sheet

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Preparation of Balance Sheet & Accounting Standards
For Co-operative Banks

P. R. Kulkarni, Managing Director, Fluent Consultants

1

Provisions from the Maharashtra Co-operative Societies Act, 1960
Rule 61 The committee of every society has to prepare annual statement of accounts showing, 1. Receipts and disbursements during the previous year 2. The profit and loss account for the year 3. The balance sheet as at the close of the year within 45 days of the close of the every co operative year or within such extended period as may be allowed by the Registrar.

P. R. Kulkarni, Managing Director, Fluent Consultants

2

Provisions from the Maharashtra Cooperative Societies Act, 1960 • Section 75 At every Annual General Meeting (AGM), the Committee shall lay before the society ……….. and a balance sheet and profit and loss account for the year in the manner prescribed by the Registrar by general or special order for any class or classes of society
P. R. Kulkarni, Managing Director, Fluent Consultants 3

Provisions from the Maharashtra Cooperative Societies Act, 1960 • Rule 62 The balance sheet and profit and loss account to be laid before the AGM of the society shall be ordinarily in Form ‘N’ Provided that, it shall be competent for the Registrar to permit a society or class of societies to adopt such other form as he may deem fit.

P. R. Kulkarni, Managing Director, Fluent Consultants

4

Provisions from the Maharashtra Cooperative Societies Act, 1960 • Section 75 (3) Every balance sheet laid before the society in AGM a report of the Committee needs to be attached about (a) The state of the society’s affairs (b) The amounts, if any, which it proposes to carry to any reserve
Contd …….

P. R. Kulkarni, Managing Director, Fluent Consultants

5

Provisions from the Maharashtra Cooperative Societies Act, 1960
• Section 75(3)

(c) The amounts, if any, which it recommends for payment as dividend, bonus*, or honoraria to honorary workers
(*the bonus here means as defined in Section 2(4) of the M.C.S. Act, 1960 and does not include the payment of Bonus paid under Payment of Bonus Act, 1965) Contd ……..

P. R. Kulkarni, Managing Director, Fluent Consultants

6

Provisions from the Maharashtra Cooperative Societies Act, 1960
• Section 75(3)

The report of the Committee has to deal with any changes, which have occurred during the year for which the accounts are made up, in nature of the business of the society. The report of the Committee needs to be signed by its Chairman or any other member authorized to sign on behalf of the society.
P. R. Kulkarni, Managing Director, Fluent Consultants 7

Provisions from the Maharashtra Cooperative Societies Act, 1960 • Section 75 (4)

It is required that before each AGM the balance sheet, the profit and loss account and the audit memorandum submitted by the auditor (Statutory Auditor) appointed under section 81 is kept for adoption.
P. R. Kulkarni, Managing Director, Fluent Consultants 8

Ascertainment and Appropriation of

Profit

* Section 65(1) The society is required to construct its relevant annual financial statements and arrive at net profit or loss in the prescribed manner * Section 65(2) Society can not appropriate any part of the profit except with the approval of the AGM and in conformity with the Act, Rules and the Bye-laws.

P. R. Kulkarni, Managing Director, Fluent Consultants

9

Calculation of

Net Profit

• Rule 49A Net Profit of the society is required to be calculated by deducting following, 1. Interest accrued / accruing on over due loan amounts (excepting such amount on loans against fixed deposit and gold) 2. Interest payable on loans and deposits 3. Establishment charges 4. Audit / supervision fees 5. Working expenses, repairs, rents, taxes etc. payable Contd. …..

P. R. Kulkarni, Managing Director, Fluent Consultants

10

Calculation of Net
• Rule 49A …. Contd. …

Profit

6. Depreciation 7. Bonus payable to employees under Payment of Bonus Act, 1965 8. Provision for payment of Income Tax 9. Provision for bad and doubtful debts 10. Provision for share capital redemption fund 11. Provision for investment fluctuation fund 12. Provision for retirement benefits for employees
Contd. ….

P. R. Kulkarni, Managing Director, Fluent Consultants

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Calculation of Net
• Rule 49A .. contd ….

Profit

13. Provision for any other claims admissible under any other law 14. Amounts paid / payable under directions / notifications from the State Govt. 15. Provision for bad debts / revenue losses not adjusted against any fund created out of profits 16. Contribution to sinking fund or any fund as per the Act, Rules or Bye-laws 17. Provision required for depreciation in the value of any security bonds or shares held by the society as part of its investment

P. R. Kulkarni, Managing Director, Fluent Consultants

12

Reserve Fund out of Net Profit
• Section 66 (1) and (2) From the net profit arrived at as per Rule 49A deductions 25% of net profit is required to be transferred as Reserve Fund and then only the remaining net profit is available for appropriation of profit as per Rule 50
P. R. Kulkarni, Managing Director, Fluent Consultants 13

Appropriation of Net Profit after deducting Reserve Fund Amount •
The net profit available after deducting reserve fund is available for appropriation as under 1. Development fund 2. Dividend equalization fund 3. Any other Fund created under the Byelaws or as permissible

Rule 50

P. R. Kulkarni, Managing Director, Fluent Consultants

14

Restrictions on payment of

Dividend

** Section 67 The society can not declare dividend above 15% except with the prior sanction of the Registrar ** Rule 52 (4) The society can not declare a dividend at a rate exceeding that recommended by its committee ** RBI restriction A Co-operative Bank not having Grade –I from the RBI needs prior approval from RBI for payment of dividend

P. R. Kulkarni, Managing Director, Fluent Consultants

15

Bonus and Dividend Equalization fund
** Rule 52 (1) and (2)
The society may create out of its profits, Bonus Equalization Fund for payment of bonus to persons other than its paid employees who are not its members Dividend Equalization Fund. The society may draw from this fund in any year only when it is unable to maintain a uniform rate of dividend it has been paying during the last preceding five years.

P. R. Kulkarni, Managing Director, Fluent Consultants

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Accounting Standards
1. The Accounting Standards (AS) are prescribed by the Institute of Chartered Accountants of India (ICAI) 2. The ICAI is a body constituted under the Act of Parliament (The Chartered Accountant Act, 1949 w.e.f. 1st July, 1949) for the regulation of the profession of Chartered Accounting in India. Thus it has a statutory powers and recognition.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 17

Accounting Standards
3. The ICAI has classified the enterprises in three categories viz. Level – I, Level –II and Level – III. All banks including co-operative banks are Level – I enterprises. 4. The Board of Accounting Standards in India, consisting representatives from ICAI, from associations of trade, industry and commerce, from RBI and from Central Govt. decide these standards. 5. The ICAI has up till now fixed 29 Accounting Standards on different aspects of accounting practices.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 18

Accounting Standards
6. The ICAI has decided that the Indian Accounting Standards would be in line with International Financial Reporting Standards (IFRS) effective from 1st April, 2011. 7. The Banks are representing through IBA that above stated achievement would imply fundamental changes in financial reporting, internal changes including changes in the software and may need reconsideration.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 19

Accounting Standards
AS-1 – Disclosure of Accounting Policies This standard is about whether significant accounting policies are followed in preparation of accounts and they are disclosed at one place along with the financial statements. Any change and financial impact of such change should be disclosed. Accounting policies adopted by the enterprise should represent true and fair view of the state of affairs of the financial statement.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 20

Accounting Standards
AS-3 – Cash Flow Statements
This accounting standard is about disclosure of movement in “cash and cash equivalents” It segregates various transactions into operating, investing and financing activity. “Cash” comprises cash on hand and demand deposits with banks “Cash Equivalents” are short term volatile liquid investments that are readily converted into cash “Cash Flows” are inflows and out flows of cash and cash equivalents “Operating Activities” are the principle revenue generating activities of the enterprise Cash flows are required to be shown on above stated aspects. Items like income tax, dividend are required to be shown separately.

P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune

21

Accounting Standards
AS-5 – Net Profit / Loss for the period, prior period items and changes in accounting policies
For this standard following definitions are required to be known. - “Ordinary Activity” is any activity undertaken by the enterprise as part of its business and such other related activities - “Extraordinary Items” are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly - “Prior Period Items” are income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods Contd. ….
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 22

Accounting Standards
AS-5 – Net Profit / Loss for the period, prior period items and changes in accounting policies
- “Accounting Policies” are the specific accounting principles and the methods of applying these principles adopted by the enterprise in the preparation and presentation of financial statements - Any change, effect or estimation of any change is required to be considered and disclosed while preparing the financial statement
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 23

Accounting Standards
AS-6 – Depreciation Accounting
- Rates of depreciation should be disclosed - Change in method followed must be due to requirement of statute, compliance of Accounting Standard, appropriate preparation and/or presentation of financial statements - Depreciable amount of a depreciable asset must be on allocated on systematic basis to each accounting year over useful life of asset and useful life is reviewed periodically
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 24

Accounting Standards
AS-9 – Revenue Recognition - In case of services, revenue must be recognized either on completed service method or proportionate completion method. The revenue must be received or receivable certainly. - Interest is recognized on time basis i.e. received when due.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 25

Accounting Standards
AS-10 – Accounting for fixed Assets
The cost of fixed asset should comprise it purchase price and any additional cost required for bringing the asset to its working condition for intended use Revaluation of asset is permitted provided it is done for the entire class of assets and basis of revaluation is disclosed Increase in value on revaluation needs to be credited to “revaluation reserves” while decrease in value has to be charged to profit and loss account Assets should be eliminated from books on disposal or when of no utility value Goodwill should be accounted only when paid

P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune

26

Accounting Standards
AS-13 – Accounting of Investment
- Current investments and long term investments shall be disclosed distinctly with further applicable subclassification. - Cost of investment to include acquisition charges e.g. brokerage, fees and duties. - Provision for decline in cost is done. - Adequate discloser is required for points such as the accounting policy adopted, classification of investments, income from investments, profit / loss on disposal of investment, aggregate amount of quoted and unquoted investment.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 27

Accounting Standards
AS-15 – Accounting for Retirement Benefits in the Financial Statement of the Employer - The method of accounting of retirement benefits depend on the nature of retirement benefits and also on the mode of funding e.g. through a trust, insurance, investment or charge to paid year’s profit and loss. - This standard applies to payment of provident fund, gratuity, leave encashment, pension etc.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 28

Accounting Standards
AS-17 – segment Reporting
- Requires reporting of financial information about different types of products and services an enterprise provides and different geographical areas in which it operates. - A business segment is a distinguishable component of an enterprise providing a product or service or group of products and services.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 29

Accounting Standards
AS-22 – Accounting for Taxes on Income - This applies to taxes on income - This includes the determination of the amount of the expenses or saving related to taxes on income

P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune

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Accounting Standards
AS-29 – Accounting for Provisions and Contingent Liabilities - Provision should be recognized only when an entity has a present obligation, legal or constructive as a result of past event. - Gains from expected disposal of the asset should not be taken into account while deciding the provision amount. - Provision should be used only for expenditure for which it was originally made / recognized - Provision should not be recognized for future operating losses
Contd. ….

P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune

31

Accounting Standards
AS-29 – Accounting for Provisions and Contingent Liabilities - Contingent liability is a possible future obligation that may arise from past event/s and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within control of the entity. - It is recognized as probable obligation that will make outflow of cash.
P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune 32

THANK YOU
Lecture and presentation by

Shri. P. R. KULKARNI Managing Director Fluent Consultants Pvt. Ltd.; Pune.

P. R. Kulkarni, Managing Director, Fluent Consultants Pvt. Ltd., Pune

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