Chapter 17: Final Accounts of Banking Companies (JAIIB – Paper 3)
1. Which of the following is the primary function of a bank?
A. Manufacturing goods
B. Regulating stock markets
C. Accepting deposits and lending money
D. Providing insurance only
Banks primarily mobilize deposits and provide credit to individuals, businesses, and government entities.
2. According to the Banking Regulation Act, 1949, a banking company is defined as:
A. Any company providing consultancy services
B. A company which transacts the business of banking as defined under the Act
C. Any company listed on the stock exchange
D. A company engaged only in insurance business
A banking company is defined under Section 5(b) of the Banking Regulation Act, 1949 as a company which transacts banking business in India.
3. Which of the following is NOT a requirement of banking companies regarding accounts and audit?
A. Maintenance of cash reserves with RBI
B. Preparation of annual profit and loss account
C. Filing of balance sheet with the Registrar of Companies
D. Conducting internal stock market audits
Banks are required to maintain proper accounts, submit audited financial statements, and comply with RBI regulations, but not conduct stock market audits.
4. The audit of a banking company must be conducted by:
A. A qualified Chartered Accountant appointed as per the Banking Regulation Act
B. RBI officials directly
C. Any government officer
D. Company secretary only
Section 30 of the Banking Regulation Act mandates that every banking company must appoint a qualified Chartered Accountant to audit its accounts.
5. Which statement best describes the function of banks in the economy?
A. Banks only provide employment and pay taxes
B. Banks mobilize savings and provide credit, supporting economic growth
C. Banks control government expenditure directly
D. Banks only facilitate international trade
Banks play a key role in the economy by mobilizing deposits, providing loans, and facilitating investment and economic growth.
6. Which of the following is a significant feature of the accounting system of banks?
A. Dual control of cash and transactions
B. No need for periodic reconciliation
C. Only annual accounts are maintained
D. No separate ledger for deposits
Banks maintain dual control to ensure accuracy and security in cash handling and account transactions, which is a key feature of their accounting system.
7. Which book of accounts records all money received and paid by a bank in chronological order?
A. Ledger
B. Trial balance
C. Cash Book
D. Reserve Fund Register
The cash book records all receipts and payments in chronological order and acts both as a journal and a ledger for cash transactions.
8. The principal books of account of a bank include all of the following EXCEPT:
A. Cash Book
B. Ledger
C. Loan and Advances Register
D. Employee Attendance Register
Employee attendance register is not a book of account; principal books include cash book, ledger, and loan registers.
9. In the preparation of financial statements of banks, which of the following is shown on the liabilities side of the balance sheet?
A. Loans and Advances
B. Deposits from customers
C. Cash in hand
D. Fixed Assets
Customer deposits represent the bank’s liabilities, hence they appear on the liabilities side of the balance sheet.
10. Which financial statement of a bank shows the results of operations over a financial year?
A. Profit and Loss Account
B. Balance Sheet
C. Cash Flow Statement
D. Reserve Fund Statement
The Profit and Loss Account summarizes the bank’s income and expenditure during the financial year, showing net profit or loss.
11. How should a bank treat interest received in advance on loans in its accounts?
A. Treat it as revenue for the current year
B. Ignore it until loan is due
C. Record it as a liability (income received in advance)
D. Transfer it to capital account
Interest received in advance is treated as a liability until it is earned, following accrual accounting principles.
12. In preparing a Profit and Loss Account, which of the following items is debited?
A. Interest paid on deposits
B. Income from investments
C. Commission received
D. Fees for locker rent
Expenses like interest paid on deposits are debited in the Profit and Loss Account to calculate net profit.
13. Which item in the Profit and Loss Account represents an appropriation of profits rather than an expense?
A. Interest on borrowed funds
B. Transfer to Statutory Reserve Fund
C. Salaries of employees
D. Rent paid for premises
Transfers to statutory reserve fund are appropriations of profit mandated by the Banking Regulation Act, not operational expenses.
14. While commenting on Profit and Loss Account items, which of the following is considered a key indicator of bank performance?
A. Number of branches opened
B. Employee count
C. Total assets only
D. Net profit and net interest margin
Net profit and net interest margin indicate the operational efficiency and profitability of the bank.
15. Provision for bad and doubtful debts in a bank’s accounts is treated as:
A. Revenue income
B. An expense in the Profit and Loss Account
C. Capital account item
D. Liability on balance sheet only
Provisions for bad and doubtful debts are treated as an expense in the Profit and Loss Account to account for potential loan losses.
16. Which of the following is classified under assets in a bank’s balance sheet?
A. Customer deposits
B. Statutory reserve fund
C. Loans and advances
D. Share capital
Loans and advances given by the bank are assets as they represent amounts receivable from customers.
17. Customer deposits in a bank are classified under:
A. Bank assets
B. Bank liabilities
C. Contingent liabilities
D. Capital fund
Deposits from customers are obligations of the bank, hence classified as liabilities in the balance sheet.
18. Which of the following disclosures is mandatory in a bank’s notes to accounts?
A. Contingent liabilities like guarantees and acceptances
B. Employee attendance records
C. Daily cash transactions
D. Branch-wise revenue only
Notes to accounts must disclose contingent liabilities, including guarantees, acceptances, and other potential obligations.
19. Which item is shown separately in a bank’s balance sheet as a part of capital fund?
A. Cash in hand
B. Deposits from customers
C. Loans given
D. Share capital and reserves
Share capital and reserves form the capital fund of the bank and are shown separately on the liabilities side.
20. Why are banks required to disclose information in the notes to accounts?
A. To provide marketing information to customers
B. To provide transparency and additional details beyond the balance sheet
C. To replace the need for an audit
D. To show employee performance
Notes to accounts help users understand financial statements in detail, ensuring transparency and compliance with regulatory requirements.
21. Under Basel-III guidelines, which of the following ratios must banks disclose to RBI?
A. Dividend payout ratio
B. Employee turnover ratio
C. Capital Adequacy Ratio (CAR)
D. Branch expansion ratio
Basel-III requires banks to maintain and disclose their Capital Adequacy Ratio (CAR) to ensure financial stability and solvency.
22. Which of the following is true regarding Pillar 3 disclosures under RBI Basel-III norms?
A. They relate to operational hours of bank branches
B. They provide market discipline by disclosing risk exposures and capital adequacy
C. They are optional disclosures for banks
D. They include employee performance metrics
Pillar 3 disclosures aim to improve transparency by providing detailed information on risk exposure, capital adequacy, and risk management practices.
23. Which banks are required to submit additional disclosures if they are listed on a stock exchange?
A. Public and private sector banks listed on any recognized stock exchange
B. Only foreign banks operating in India
C. Cooperative banks only
D. RBI itself
Banks listed on stock exchanges must disclose additional information to investors as per SEBI and RBI guidelines, enhancing transparency and governance.
24. Which of the following is disclosed by banks under Basel-III related to risk management?
A. Daily cash withdrawals by customers
B. Employee attendance
C. Number of ATMs installed
D. Credit, market, and operational risk exposures
Basel-III disclosures include detailed reporting of credit, market, and operational risk exposures to ensure market discipline and transparency.
25. Banks listed on stock exchanges are required to provide which of the following additional disclosures?
A. Daily branch-wise cash balance
B. Quarterly financial results, capital adequacy, and significant risk exposures
C. Employee leave records
D. Daily customer complaints
Listed banks must provide quarterly financial results, capital adequacy ratios, and information on major risk exposures to comply with SEBI and RBI regulations.
26. Which of the following is the primary purpose of implementing Ind AS in banks?
A. To reduce banking operations
B. To align financial reporting with global accounting standards
C. To eliminate the need for audits
D. To increase deposit interest rates
Ind AS ensures that banks’ financial statements are comparable globally and follow consistent accounting principles.
27. Which bank is required to adopt Ind AS for financial reporting in India?
A. Only foreign banks with branches in India
B. Cooperative banks only
C. All scheduled commercial banks above the specified net worth threshold
D. RBI itself
Scheduled commercial banks meeting the net worth threshold specified by the Ministry of Corporate Affairs must adopt Ind AS.
28. Which of the following is a key difference between Ind AS and earlier accounting standards for banks?
A. Ind AS emphasizes fair value measurement of financial instruments
B. Ind AS removes all accounting for loans
C. Ind AS does not require disclosure of provisions
D. Ind AS ignores contingent liabilities
Ind AS introduces fair value accounting for financial instruments, which was not emphasized under the earlier Indian GAAP for banks.
29. Under Ind AS, how are Expected Credit Losses (ECL) treated in a bank’s accounts?
A. Ignored until default occurs
B. Shown as contingent liability only
C. Treated as revenue
D. Recognized as provision for impairment immediately
Ind AS 109 requires banks to recognize expected credit losses on financial assets immediately, enhancing the prudence in financial reporting.
30. Which of the following disclosures is mandatory for banks under Ind AS?
A. Daily cash transactions of all branches
B. Fair value of financial instruments, related party transactions, and provisions
C. Employee personal details
D. Branch-wise customer complaints
Ind AS requires detailed disclosures including fair value of financial instruments, provisions, and related party transactions to improve transparency.
