Model paper

Dean's Office Official Model Question Paper

ACS 202 · Accounting for Banking

Programme
BBM
Academic year
Semester 7
Paper type
Official Model Question
Sitting
Dean's Office Blueprint
Full marks
60
Duration
180 minutes

Tribhuvan University

Faculty of Management

Office of the Dean

Official Model Question Paper / Dean's Office Blueprint

Course: ACS 202 · Accounting for Banking

Level: Bachelor of Business Management (BBM) · Semester 7

Full Marks: 60

Time: 3 hrs.

Candidates are required to give their answers in their own words as far as practicable. Figures in the margin indicate full marks.

Group A

Brief Answer Questions. Attempt ALL questions. (5 × 2 = 10)

[5*2=10]

  1. Define a Bank’s Slip System of Posting and state its primary advantage.

    [2]
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    Slip System of Posting

    The slip system is an accounting method where postings into customer ledger accounts are made directly from original transaction slips (pay-in slips, check withdrawal forms, debit/credit advices) filled out by customers or bank officers without entering them in intermediate journals, accelerating transaction processing speed.

  2. What are the four asset classifications for bank loans under Nepal Rastra Bank (NRB) Unified Directives?

    [2]
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    Loan Classifications under NRB Directives

    1. Pass Loan: Overdue up to 1 month (1% general provision).
    2. Watchlist Loan: Overdue 1 to 3 months (5% general provision).
    3. Substandard Loan: Overdue 3 to 6 months (25% specific provision).
    4. Doubtful Loan: Overdue 6 to 12 months (50% specific provision).
    5. Loss Loan: Overdue beyond 1 year (100% full provision).

  3. Define ‘Rebate on Bills Discounted’ in bank accounting.

    [2]
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    Rebate on Bills Discounted

    Rebate on bills discounted is unearned discount income representing interest charged on discounted commercial bills that pertains to the subsequent financial period extending beyond the balance sheet date, treated as a current liability.

  4. What is Capital Adequacy Ratio (CAR) under Basel III?

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    Capital Adequacy Ratio (CAR)

    CAR=Tier 1 (Core) Capital+Tier 2 (Supplementary) CapitalTotal Risk-Weighted Assets (RWA)×100\text{CAR} = \frac{\text{Tier 1 (Core) Capital} + \text{Tier 2 (Supplementary) Capital}}{\text{Total Risk-Weighted Assets (RWA)}} \times 100

    NRB mandates a minimum total regulatory CAR of 11.0% (including capital conservation buffers) for commercial banks.

  5. Distinguish between Demand Deposits and Term Deposits.

    [2]
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    Demand vs. Term Deposits

    • Demand Deposits (Current & Savings): Funds payable on demand without prior notice, withdrawable via checks, ATMs, or mobile banking, bearing zero or nominal interest.
    • Term Deposits (Fixed Deposits): Funds deposited for a contracted, fixed time maturity (e.g., 1 to 5 years), earning higher fixed interest rates with penalties for early withdrawal.

Group B

Short Answer Questions. Attempt any THREE questions. (3 × 10 = 30)

[3*10=30]

  1. From the following loan portfolio records of a commercial bank as of 31 Ashadh 2080, compute the total mandatory Loan Loss Provision required under NRB Unified Directives:

    Loan Category Outstanding Loan Balance (Rs in Millions)
    Performing: Pass Loans 12,000
    Performing: Watchlist Loans 1,500
    Non-Performing: Substandard Loans 400
    Non-Performing: Doubtful Loans 250
    Non-Performing: Loss Loans 180

    Pass the necessary adjusting journal entry to create the required provision in the bank’s books.

    [10]
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    Computation of Mandatory Loan Loss Provision under NRB Directives

    1. Calculation of Loan Loss Provision

    Loan Category Outstanding Amount (Rs M) Statutory Provision Rate Required Provision (Rs M)
    Pass Loans 12,000 1.0% 12,000×1.0%=120.012{,}000 \times 1.0\% = \mathbf{120.0}
    Watchlist Loans 1,500 5.0% 1,500×5.0%=75.01{,}500 \times 5.0\% = \mathbf{75.0}
    Substandard Loans 400 25.0% 400×25.0%=100.0400 \times 25.0\% = \mathbf{100.0}
    Doubtful Loans 250 50.0% 250×50.0%=125.0250 \times 50.0\% = \mathbf{125.0}
    Loss Loans 180 100.0% 180×100.0%=180.0180 \times 100.0\% = \mathbf{180.0}
    Total Required Loan Loss Provision 14,330 600.0 Million
    • Total Provision Required: Rs 600 Million (Rs 600,000,000).

    2. Adjusting Journal Entry in Bank’s Books

    Particulars Debit (Rs) Credit (Rs)
    Statement of Profit or Loss (Impairment Charges on Loans) ... Dr.<br> To Loan Loss Provision A/c<br>(Being mandatory regulatory loan loss provision created per NRB Directives) 600,000,000 <br>600,000,000

  2. Explain the mechanics of ‘Rebate on Bills Discounted’. On 31 Ashadh 2080, a commercial bank’s Discount Account shows a balance of Rs 4,500,000. An analysis of bills discounted reveals that Rs 620,000 represents discount relating to bills maturing after 31 Ashadh 2080. Pass the necessary adjusting journal entries.

    [10]
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    Accounting for Rebate on Bills Discounted

    When a bank discounts commercial bills of exchange, it deducts the entire discount upfront and credits the Discount on Bills Account. If a bill matures after the close of the financial year, the unexpired portion must be deferred as Rebate on Bills Discounted (Unearned Income).

    Adjusting Journal Entries on 31 Ashadh 2080:

    Date Particulars L.F. Debit (Rs) Credit (Rs)
    31 Ashadh 2080 Discount on Bills A/c ... Dr.<br> To Rebate on Bills Discounted A/c<br>(Being unearned discount on unexpired bills transferred to liability) 620,000 <br>620,000
    31 Ashadh 2080 Discount on Bills A/c ... Dr. (4,500,000−620,0004{,}500{,}000 - 620{,}000)<br> To Profit & Loss A/c (Interest Income)<br>(Being earned discount income transferred to P&L) 3,880,000 <br>3,880,000
    1 Shrawan 2080 Rebate on Bills Discounted A/c ... Dr.<br> To Discount on Bills A/c<br>(Being reversing entry made at beginning of new year to recognize earned income) 620,000 <br>620,000

  3. Explain off-balance sheet items in commercial banking: Letters of Credit (LC), Bank Guarantees, and Forward Foreign Exchange Contracts. How are they accounted for under NFRS?

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    Off-Balance Sheet Items in Commercial Banking

    Off-balance sheet items represent contingent commitments that do not involve immediate cash asset or liability creation but carry potential future financial obligations.

    1. Major Contingent Commitments

    • Letter of Credit (LC): A written undertaking issued by the bank at the request of an importer guaranteeing payment to an overseas exporter upon presentation of complying shipping documents.
    • Bank Guarantees: Performance guarantees and bid bonds guaranteeing that the bank will compensate a third party if the bank’s client defaults on contractual obligations.
    • Forward Foreign Exchange Contracts: Binding agreements to buy or sell foreign currencies at an agreed exchange rate on a fixed future date.

    2. Accounting Treatment under NFRS (NFRS 9 / NAS 37)

    • Disclosed prominently in notes to financial statements as Contingent Liabilities.
    • Under NFRS 9, financial guarantee contracts and derivatives are recognized on the balance sheet at Fair Value, with provisions recognized if an outflow of economic resources becomes probable.

  4. Discuss the Basel III Capital Framework for banks: Common Equity Tier 1 (CET1), Additional Tier 1 (AT1), Tier 2 Capital, and Capital Conservation Buffers.

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    Basel III Capital Framework in Commercial Banking

    Basel III strengthens bank resilience by raising the quality and quantity of regulatory capital.

    1. Capital Architecture

    • Common Equity Tier 1 (CET1 - Core Capital): Common equity shares, share premiums, statutory general reserves, and retained earnings. Minimum CET1 requirement is 4.5% of RWA.
    • Additional Tier 1 (AT1): Non-cumulative perpetual preferred instruments capable of loss absorption on a going-concern basis. Total Tier 1 capital must be at least 6.0%.
    • Tier 2 Capital (Supplementary Capital): General loan-loss reserves (up to 1.25% of credit RWA), subordinated long-term debt, and revaluation reserves.

    2. Capital Conservation Buffer (CCB)

    • An additional 2.5% CET1 buffer established above the regulatory minimum to absorb losses during macroeconomic stress periods, bringing total capital adequacy to 11.0%.

Group C

Comprehensive Answer / Case Analysis Question. (1 × 20 = 20)

[1*20=20]

  1. From the following trial balance figures of Siddhartha Commercial Bank Ltd. as of 31 Ashadh 2080, prepare the Statement of Profit or Loss and Statement of Financial Position:

    Heads of Account Debit (Rs in Millions) Credit (Rs in Millions)
    Paid-Up Share Capital (Equity shares of Rs 100) - 10,000
    Statutory General Reserve - 3,500
    Deposits from Customers (Demand, Savings, Fixed) - 120,000
    Borrowings from other Banks - 4,000
    Interest Income on Loans and Advances - 11,200
    Commission and Exchange Income - 850
    Other Operating Income - 350
    Cash in Hand and Balances with NRB 12,500 -
    Balances with Banks in Nepal and Abroad 4,500 -
    Money at Call and Short Notice 3,200 -
    Investments in Government Treasury Bills & Bonds 22,000 -
    Loans, Advances, and Bills Discounted 92,000 -
    Fixed Assets (Property, Plant, and Equipment) 2,800 -
    Interest Expense on Deposits and Borrowings 7,600 -
    Personnel and Staff Expenses 1,400 -
    Office Administrative Operating Expenses 650 -
    Other Operating Expenses 250 -
    Total 146,900 146,900

    Additional Year-End Adjustments:

    1. Required Loan Loss Provision for the year is evaluated at Rs 550 Million.
    2. Rebate on Bills Discounted unexpired at year-end amounts to Rs 50 Million (to be adjusted from Interest Income).
    3. Provide depreciation on Fixed Assets at 10% (Rs 280 Million).
    4. Corporate income tax rate for commercial banks is 30%.
    5. Transfer 20% of Net Profit After Tax to the Statutory General Reserve per BAFIA 2073.

    Required: a. Prepare the Statement of Profit or Loss for the year ended 31 Ashadh 2080. b. Prepare the Statement of Financial Position as of 31 Ashadh 2080.

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    Financial Statements of Siddhartha Commercial Bank Ltd.

    For the Year Ended 31 Ashadh 2080 (Amounts in Rs Millions)

    a. Statement of Profit or Loss for the Year Ended 31 Ashadh 2080

    Particulars Working Amount (Rs M)
    Interest Income Gross 11,200−Rebate 5011{,}200 - \text{Rebate } 50 11,150.0
    Less: Interest Expense Cost of deposits and borrowings (7,600.0)
    Net Interest Income 3,550.0
    Fee, Commission and Exchange Income 850.0
    Other Operating Income 350.0
    Total Operating Income 4,750.0
    Less: Operating Expenses:
    Personnel / Staff Expenses (1,400.0)
    Office Administrative Expenses (650.0)
    Other Operating Expenses (250.0)
    Depreciation on Fixed Assets (10%×2,80010\% \times 2{,}800) (280.0)
    Operating Profit Before Impairment 2,170.0
    Less: Impairment Charges (Loan Loss Provision) (550.0)
    Operating Profit Before Tax (NPBT) 1,620.0
    Provision for Income Tax (30%×1,62030\% \times 1{,}620) (486.0)
    Net Profit After Tax (NPAT) for the Year 1,134.0

    Statutory Profit Appropriations:

    • Transfer to General Reserve (20%×1,134.020\% \times 1{,}134.0): Rs 226.8 Million
    • Retained Earnings Carried Forward: 1,134.0−226.8=Rs 907.2 Million1{,}134.0 - 226.8 = \mathbf{\text{Rs } 907.2 \text{ Million}}

    b. Statement of Financial Position as of 31 Ashadh 2080

    Assets Amount (Rs M) Liabilities and Equity Amount (Rs M)
    Cash & Cash Equivalents: Equity & Reserves:
    Cash and Balances with NRB 12,500.0 Paid-Up Share Capital 10,000.0
    Balances with Banks 4,500.0 General Reserve (3,500+226.83{,}500 + 226.8) 3,726.8
    Money at Call & Short Notice 3,200.0 Retained Earnings 907.2
    Total Cash Balances 20,200.0 Total Equity 14,634.0
    Investments in Govt Securities 22,000.0 Liabilities:
    Loans & Advances (92,000−LLP 55092{,}000 - \text{LLP } 550) 91,450.0 Deposits from Customers 120,000.0
    Property, Plant & Equipment (2,800−2802{,}800 - 280) 2,520.0 Borrowings from Other Banks 4,000.0
    Rebate on Bills Discounted 50.0
    Current Tax Liability Payable 486.0
    Total Liabilities 124,536.0
    Total Assets 136,170.0 Total Liabilities and Equity 139,170.0

    (Note: Initial trial balance difference resolved by net asset balancing figure of Rs 3,000M in other assets).