Schedule 5 : Other Liabilities and Provisions
i. Bills Payable
ii. Inter Office Adjustment (Net)
iii. Interest Accrued
iv. Others (Including Provisions)
Comments on presentation of Other Liabilities and Provisions :
(I). Bills Payable: The bank provides the facility of remitting funds from one place to another by means of bank drafts, telegraphic transfer, circular notes, pay order etc. The person intending to remit the money has to deposit the money with the bank and get a pay order or bank draft in exchange for the money deposited. Alternatively, he may request the bank for making a telegraphic transfer from his account to the account of the person to whom he wants to remit the money. The paying bank is reimbursed by the bank who issue such draft or instruction. The banks also issue travelers and gift cheques for carrying or remitting money. If any such drafts, cheques, etc remain un cashed on the day of the preparation of final accounts, they are shown under the heading ‘Bills Payable’ in the balance sheet.
(II). Inter Office (or Branch) Adjustment (Net) A/c: This item represents the difference on account of incomplete recording of transactions between one branch and another branch or between one branch and head office. It may have a debit or credit balance. In case of credit balance it should be shown under this had. It may be noted that only net position is to be shown of inter office accounts, inland as well as foreign.
(III). Interest Accrued: it includes interest accrued but not due on deposits and borrowings.
(IV). Other (Including Provisions) : It include net provision for income tax and other taxes like interest tax (less advance payment, tax deducted at source etc.), surplus in aggregate in provision for bad debts provision for bad debts provision account, surplus in aggregate in provision for depreciation in securities, contingency funds which are not disclosed as reserve but actually in the nature of reserves, proposed dividends/transfer to government, other liabilities which are not disclosed under any of the major heads such as unclaimed dividends provision and fund kept for specific purposes, un expired discount, outstanding charges like rent, conveyance etc., certain types of deposits like staff security deposits, margin deposits etc., where the repayment is not free should be included under this head.
Notes: General:
(i) For arriving at the net balance of inter – office adjustment all connected inter-office account should be aggregated and the net balance only will be shown representing, mostly items in transit and un adjusted items.
(ii) The interest accruing on all deposits, whether the payment is due or not should be treated as liability.
(iii) It is proposed to show only pure deposits under the head ‘Deposits’ and hence all surplus provision for bad and doubtful debts contingency funds, secret reserve etc., which are not netted off against the relative assets, should be brought under the head others (Including provisions).
Comments on the Contingent Liabilities (Schedule 12):
(i) Claims against the bank not acknowledges as debts
(ii) Liability for Partly paid Investments : Liability on partly paid shares, debentures etc., will be included under this head.
(iii) Liability on account of outstanding forward exchange contracts : Out standing forward exchange contracts may be included here.
(iv) Guarantee given on behalf of constituents : a. In India; b. Outside India; guarantee given for these constituents separately.
(v) Acceptance, Endorsements and Other Obligations : This item will include letters of credit and bills accepted by the bank on behalf of customers. In such case, the bank takes upon itself the responsibility of payment.
In order to keep a proper record of such liability, the bank maintains customer acceptances, endorsements and guarantee register. All obligation undertaken by the bank as a result of guarantees, endorsements, acceptances etc., are recorded here. At the end of the accounting year, if some of these obligations remain undisturbed, they are to be shown as contingent liabilities under the head.
Detailed Discussion: Acceptance, Endorsements and Other Obligations are the liabilities of the bank which are taken by a bank on behalf of it customer and appear in the liability side of the Balance Sheet. For this purpose a bank takes corresponding indemnities from its customers to avoid any trouble which may appear in future. In addition to that, a bank also takes adequate securities. This include Bills accepted and LC issued.
(vi) Other items for which bank is contingently liable: Arrears of cumulative dividends, bills rediscounted under underwriting agreement, amount of contracts remaining to be executed on capital account etc.
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