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E2-E3

Finance

Corporate Accounts

WELCOME

• This is a presentation for the E2-E3(Finance)

• Module for the Topic: Corporate Accounts

• Eligibility: Those who have got the Upgradation from

E2to E3

• This presentation is last updated on 15-3-2011.

• You can also visit the Digital library of BSNL to see this

topic.


Accounting

• Accounting is the Art and science of

Recording

Classifying

Summarizing

Interpreting


Objective of Accounting

• Is to enable a person to ascertain :

– The amount he has gained or lost in the

business

– The value of assets and liabilities and the

capital in the business

– How the profit is made or loss occurred

– How the business stands in comparison to

similar business


Various Stages of Accounting in BSNL

1. Recording transactions in cash / bank book

2. Recording transactions in journals

3. Posting as per schedule of accounts in

ledgers.

4. Preparation of Trial Balance

5. Compilation of schedules and reconciliation

6. Circle Trial Balance

7. Closure of Accounts

8. Preparation of Financial statements


Double Entry System

• Duality or Accounting Equivalence concept-

Owners’ equity+ outside liability = Assets

• Based on Accrual concept

• Matching concept- expenses matched with

revenue, revenue and expenses matched for a

particular period


Basic concepts in accounting

• True and fair view-unbiased presentation of

accounts

• Concept of capital and income-depending on

duration of benefit derived

• Money measurement concept-concerned with

facts which are expressible in monetary terms



• Cost concept-amounts paid or payable

• Conservatism concept-revenue to be

recognised when absolute certainty of receipt

exists whereas cost to be recognised even

without absolute certainty of payment

• Consistency concept- accounting treatment

remains consistent over a period of time



• Business entity concept- distinct entity from

the owners and managers

• Going concern concept- assumed that

operations will continue

• Accounting period concept-Financials

prepared for a particular period maintained from

year to year.


Financial Reporting Framework

Qualitative Characteristics:

• Understandability

• Relevance

• Materiality

• Reliability

• Comparability


Financial Reporting Framework

Pillars of Reliability :

• Faithful representation

• Substance over form

• Neutrality

• Prudence

• Completeness


Financial Statements

• Balance Sheet

• Profit and Loss Account

• Cash Flow Statement


Objective of Financial statements

• Is to provide information about the

financial position, performance and cash flows

that is useful to a wide range of users in making

economic decisions.


Users and their information needs• Investors: Need information to decide whether

they should sell, buy or hold and also the ability

of the company to pay dividends

• Employees: Stability and profitability of the

company. Ability to provide remuneration,

retirement benefits and employment

opportunities

• Lenders: Whether their loans and interest

attaching to them will be repaid when due

• Suppliers and other creditors :Whether the

amounts owing to them will be paid when dueFor internal circulation of BSNL only

Users and their information needs

• Customers : Information about the continuance

of an enterprise

• Government and their agencies : interested in

allocation of resources and also to determine the

taxation policies

• Public : Substantial contribution to the local

economy like number of people they employ and

their patronage of local suppliers.

• Management: To carry out its planning, decision

making and control responsibilities.


Financial statements

• Information about financial position is primarily

provided in a Balance Sheet

• Information about the performance is primarily

provided in the Profit and Loss Account

• Information about the cash flows is provided in

the cash flow statement.


Financial Position

• Asset : Is a resource controlled by the enterprise

as a result of past events from which future

economic benefits are expected to flow to the

enterprise

• Liability : Is a present obligation of the enterprise

arising from past events, the settlement of which

is expected to result in outflow from the

enterprise of resources

• Equity : Is the residual interest in the assets of

the enterprise after deducting all the liabilities.


Balance Sheet• Statutory format prescribed by the companies Act 1956

and contained in part I of Schedule VI

• The broad Headings under which the assets and liabilities

side are classified

Liabilities Assets

Share capital Fixed assets

Reserves and surplus Investments

Secured & unsecured loans Current assets

Current liabilities loans and advances

Provisions Miscellaneous Expr

Profit and loss account

• Notes

– Claims against the company not acknowledged as debts

– Moneys for which the company is contingently liable


Profit and loss account

• No prescribed format

• What information to be furnished is contained in

Part II of schedule VI of Companies Act 1956

• Should clearly set out the various items relating

to the income and expenditure arranged under

most convenient and logical heads.


Profit and loss account (cont)

• Financial information

• Managerial remuneration

• Payments to auditor

• Foreign exchange transactions

• Other matters


Cash Flow

What is a Cash Flow Statement?

‘The Cash Flow statement is a statement showing

the movement of cash into and out of the business

and its net impact on the cash balance with the

business’


Why Cash Flow Analysis?

• Cash position is more critical to a business

than profitability

• More direct reflection of a company’s

viability


Types of Cash Flows

• Operating activities

• Investing activities

• Financing activities


Limitations of Financial Statements

• Information furnished is not precise.

• Balance sheet is a static document

• Balance sheet is not a valuation statement

• Profit shown in P&L account is not real profit

• Human capital is not shown in the financial

statements

• Due to difference in the methods of accounting

followed by different concerns it is difficult to

compare the statements


BSNL Accounting policies


Accounting Policies of BSNL

• Basis :

– Financial statements are prepared under the historical cost

convention adopting accrual method of Accounting

• Revenue Recognition :

– Recognized when earned and realizable at the time of billing –

unbilled revenues are recorded as accrued revenue

– Installation charges

– Charges for services and infrastructure provided to DOT

– Income from SIMS , prepaid calling cards etc.,

– Interest on loans to employees

– Sale proceeds of scraps arising from mtcs and project works

– uncertainty in realization -Liquidated damages, Amounts due

from local bodies etc.,

– Claims from USO on a/c of provision of infrastructure.



• Fixed Assets :

– Carried at cost less depreciation

– Replacement of assets

– Capitalization

• Depreciation :

– Method

– Petty Assets

– Partitions

– Buildings

– Intangible assets such as Entry license fee

– Computer software Application



• Impairment of Assets

• Inventories

• Foreign currency transactions

• Extraordinary items



• Employees benefits

– Short term employee benefits

– Long term employee benefits

• Defined contribution plan:

– Pension contribution

– EPF

– Contribution for leave salary

• Defined benefit plans

– Leave encashment

– Gratuity

– Other benefits including post employment

medical care



• Manufacturing Expenses

• Prior period items

• Taxes on income

• Contingent liabilities

• Earning per share

• Segment reporting

