BCA 303 FINANCIAL REPORTING

BANK ACCOUNTING
This topic will cover the preparation of Bank financial performance and financial
position
On the financial performance front we have incomes and expenditures. The incomes
include
1. Interest and discount
2. Commission exchange and brokerage
3. Rents
4. Net profit on sale of investments and other assets
5. Net profit on revaluation of assets
6. Income from non-banking assets
7. Other receipts
On the other hand expenditures include
1. Interest paid on deposits
2. Salaries and allowances
3. Directors fees
4. Rent insurance lighting etc
5. Legal charges
6. Auditors fees
7. Depreciation
8. Stationery and printing
9. Loss on sale of non-banking assets
10. Other expenditure
On the financial performance we have the assets and liabilities
Capital and liabilities may include
1. Capital
2. Reserve fund
3. Deposits and other reserves
 4. Borrowings from other banks
5. Bills payable
6. Bills receivable
7. Contingent liabilities
8. Other liabilities
On the other hand assets may include
1. Cash
2. Balance with other banks
3. Money at call and short notice
4. Investments; shares, securities eg treasury bills,other bonds, other investments
5. Advances, loans, overdrafts etc
6. Bills receivable
7. Buildings
8. Furniture and fittings
9. Motor vehicles
10. Other assets
Example 1
The following figures were extracted from the books of Chakaka Bank Ltd as on 31st
December 2021

Kshs

Interest and discount received 4,060,000

Interest paid on deposits 2,404,000

Issued and subscribed share capital 1,000,000

Reserve 700,000
Commission exchange and
brokerage 180,000
Rent received 60,000
Profit on sale of investment 190,000
salaries and allowances 210,000
Directors fees and allowances 24,000
Rent 108,000
 stationery and printing 48,000
Internet 40,000
other expenses 10,000
Audit fees 8,000
Depreciation on bank properties 25,000

Additional information
a) A customer to whom Kshs 500000 has been advanced has become insolvent
and it is expected only 40% can be recovered from his estate. Interest due at 15%
on his debt has not been provided in the books
b) Provision for bad and doubtful debts on other debts is estimated at Kshs 100000
c) Rebate on bills discounted on 31st December 2020 was kshs 10000 and rebate
on bills discounted on 31st December 2021 was kshs 15000.
Required
Prepare financial performance for the year ended 31st December 2021.

Solution
Chakaka Bank Ltd statement of financial performance for the year ended 31st December
2021

Kshs Kshs

salaries and allowances 210,000 Interest and discount W1 3,655,000

commission exchange and
Interest paid on deposits 2,404,000 brokerage 180,000
Depreciation on bank
properties 25,000 Profit on sale of investments 190,000

Audit fees 8,000 Rent received 60,000

Directors fees and
allowances 24,000

Rent 108,000

stationery and printing 48,000

Internet 40,000

other expenses 10,000

Net profit 1,208,000

 4,085,000 4,085,000

Working (W1)
Amount of interest and discount to be credited to the financial performance is calculated as
follows
Interest and discount received 4,060,000
Less Provision for bad and doubtful debts
60% of 500000 (300,000)
On other debts (100,000)
Rebates on bills discounted 31 Dec 2021 (15,000)
3,645,000
Add rebates on bills discounted on 31 Dec 2020 10,000
3,655,000

Example 2
From the following information and balances extracted from the books of accounts of AGM
bank Ltd as on 31st December 2019 prepare statement of financial performance and financial
position as at that date.

Trial balance
Kshs
Kshs 000 000
Capital(authorized and issued
100000 shares of shs 50 each 5000
Reserve fund 6250
Land and building 1,500
Investments
Govt securities 17,000
shares 7,950
current deposits 22750
savings accounts 8260
compulsory deposits(contra) 1000
Fixed and time deposits 17590
 Liability for customers’
acceptance (contra) 7,584
compulsory deposits(contra) 1000
Furniture and fittings
equipment 250
Bills purchased and
discounted 17,750
Loans 20,850
Bills for collection 9,050
Interest accrued on
investments 438
Depreciation on assets 250
Interest paid on deposits 600
Exchange and commission
paid 50
salaries 1,200
Directors fees 50
Internet charges 200
Miscellaneous expenses 150
Money at call 750
Non-banking assets 25
sundry creditors 228
Debts due to banks(secured) 6100
Bills receivable 9050
Customers’ liability for
acceptance 7584
Rebates on bills discount 8
Branch adjustments(credit) 2276
Interest and discount
received 2900
Exchange and commission received 878
Profit and loss account 426
cash in hand 653
cash at bank(other banks) 3000

90,300 90,300

Additional information
i) Make a provision for corporation tax Kshs 500000
ii) Current account includes Kshs 4250000 debit balance being overdraft
iii) One of the accounts Kshs 50000(including Kshs 5000 suspense) is doubtful
iv) During the year a property was acquired in satisfaction of a claim amounting to Kshs
 25000 and was sold for Kshs 18000. The loss resulting therefrom remained
unadjusted in the books.

Solution
AGM bank ltd statement of financial performance for the year ended 31st December 2019

Kshs Kshs
Interest and Discount W-
Interest paid on deposits 600,000 1 2,850,000
Commission and
commission exchange paid 50,000 exchange received 878,000

salaries 1,200,000

Directors fees 50,000

Depreciation 250,000

Internet 200,000

Miscellaneous expenses 150,000

Loss on sale of non-banking
asset 7,000

Net profit 1,221,000

3,728,000 3,728,000

Appropriation of profit and loss account as at 31st December 2019

Kshs Kshs

Corporation tax 500,000 Net profit 1,221,000

P& L account bal c/d 1,147,000 P&L bal b/f 426,000

1,647,000 1,647,000
st
AGM bank Ltd Financial Position as at 31 December 2019

Kshs Kshs

Authorized and issued

share capital 100000
ordinary shares kshs 50
each 5,000,000 Premises 1,500,000

Reserve fund 6,250,000 Furniture and fittings 250,000

Deposits and other accounts Investments
Fixed and time Government
 deposits 17,590,000 17,000,000

savings accounts 8,260,000 shares 7,950,000

current account 22,750,000 Advances

borrowing from other
banks 6,100,000 Loans W-2 20,805,000
bills for Bills discounted and
collection(contra) 9,050,000 purchased 17,750,000
compulsory
deposits(contra) 1,000,000 Bills receivable (contra) 9,050,000
compulsory deposits
Profit and loss account 1,147,000 (contra) 1,000,000

Liability for Acceptance, Liability for Acceptance,

(contra) 7,584,000 (contra) 7,584,000

Current liabilities Money at call 750,000

creditors 228000 accrued interest 438,000

Rebates on bills
discounted 8,000 cash in hand W-3 671,000
cash at bank (with other
Branch adjustments 2,276,000 banks) 3,000,000

corporation tax 500,000

contingency account-
suspense a/c 5,000

87,748,000 87,748,000

WORKINGS
W-1 Interest and discount received Kshs
Balance b/f 2,900,000
Less Doubtful debts 45000
Interest suspense 5000 50,000
2,850,000
W-2 Loans
Balance b/f 20,850,000
Less provision for doubtful debts 45,000
20,805,000
W-3 Cash in hand
Balance b/f 653,000
Add proceeds from non-banking assets 18,000
671,000