Page 279 - CA Final PARAM Digital Book.

not arise. Hence the bank is correct to the extent of not applying the NPA norms for provisioning
purpose. But this exemption is not available in respect of income recognition norms. Hence the
income to the extent not recovered should be reversed. The situation would be different if the
advance is guaranteed by State Government because this exception is not applicable for State
Government Guaranteed advances, where advance is to be considered NPA if it remains overdue
for more than 90 days .
Part IV – Conclusion
➢ In case the bank has not invoked the Central Government Guarantee though the amount is
overdue for long, the reasoning for the same should be taken and duly reported in LFAR.

QNO Investment (Income, Mutual Fund) Old Course--(N11R, N12M, N16R, SM17, PM17, N18R, N18M, SM21)
458.020 TITANIUM CNO—UNIQUE New Course – (SM23)
Your firm has been appointed as Central Statutory Auditors of a Nationalised Bank. The Bank follows
financial year as accounting year. State your views on the following issues which were brought to your
notice by your Audit Manager:

The bank has recognised on accrual basis income from dividends on securities and Units of Mutual Funds
held by it as at the end of financial year. The dividends on securities and Units of Mutual Funds were
declared after the end of financial year.
Answer Part I -- Relevant Laws
▪ RBI Circulars

Part II -- Requirements of Relevant Laws
➢ Interest on bonds and debentures
Banks may book income from Government Securities and bonds and debentures of corporate
bodies on accrual basis, where interest rates on these instruments are pre-determined and
provided interest is serviced regularly and is not in arrears.

➢ Interest Income Guaranteed by Government
Banks may book income on accrual basis on securities of corporate bodies/ public sector
undertakings in respect of which the payment of interest and repayment of principal have been
guaranteed by the Central Government or a State Government, provided interest is serviced
regularly and as such is not in arrears.

➢ Dividend income on shares
Banks may book income from dividend on shares of corporate bodies on accrual basis provided
dividend on the shares has been declared by the corporate body in its Annual General Meeting and
the owner's right to receive payment is established.

➢ Dividend income on mutual funds
Banks may book income from units of mutual funds on cash basis.
Part III – Case Discussion
➢ The bank has recognised on accrual basis income from dividends on securities and Units of Mutual
Funds held by it as at the end of financial year. The dividends on securities and Units of Mutual
Funds were declared after the end of financial year.
Part IV – Conclusion
➢ Treatment given by bank is inappropriate, such dividend on mutual fund units

QNO (Audit)Advances Old Course – (N8E, M11R, N12R, N14R, M16R, N16R, PM17, M18E, M19R,
462.000 TITANIUM CNO—BA.380 SM21, N23M,)
New Course – (SM23)
As the concurrent auditor of Nagpur Main Branch of XYZ Bank Ltd. state the issues which have to be
considered in the audit of advances.
OR

ABC Chartered Accountants have been appointed as concurrent auditors for the branches of Effective
Bank Ltd. for the year 2019-20. You are part of the audit team for Agra branch of the bank and have been
instructed by your senior to verify the advances of the audit period. You are required to guide your
assistant about the areas to be taken care while doing verification during the concurrent audit.

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