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JAIIB Paper 3 • Accounting & Financial Management for Bankers (AFM) âââââ
Final Accounts of Banking Companies
The most bank-specific topic in AFM â how a bank's own annual accounts are legally required to look, and why they differ so sharply from any ordinary company's. This guide covers the Definition & Functions of a Bank, Statutory Requirements, Principal Books, Form A/B Schedules, IRAC Norms, Investment Classification, P&L and Balance Sheet items, Notes to Accounts, Basel III disclosures, and Ind AS status â with 50 exam-style MCQs with hidden answers.
"Banking" means accepting deposits of money from the public, for the purpose of lending or investment, repayable on demand or otherwise, and withdrawable by cheque, draft, order, or otherwise.
Primary Functions
Accepting deposits and lending/investing the funds.
Agency Functions
Collection and payment of cheques/bills, remittances, acting as trustee/executor.
General Utility Functions
Safe deposit lockers, issuing guarantees and Letters of Credit, dealing in foreign exchange.
2 Statutory Requirements â Accounts and Audit
Section, BR Act 1949
Requirement
Section 29
Every banking company must prepare a Balance Sheet and P&L Account in Forms A and B of the Third Schedule, as on the last day of the accounting year (31 March).
Section 30
Accounts must be audited by a person duly qualified to act as an auditor of companies.
Section 31
Accounts and the auditor's report must be submitted to RBI, and published, within 3 months of the close of the accounting period (RBI may extend by a further 3 months).
3 Significant Features of Bank Accounting
Prescribed Format
Unlike other companies, banks cannot design their own Balance Sheet/P&L layout â Forms A and B are mandatory.
Regulatory Income Recognition
Income recognition on NPAs follows RBI's IRAC norms, not pure accrual accounting.
Heavy CBS Dependence
Virtually all entries flow through the Core Banking Solution in real time.
Liability-Heavy Structure
Deposits dominate the liabilities side, the reverse of a typical trading company.
4 Principal Books of Account
General Ledger / Day Book
The master record consolidating all branch/departmental transactions.
Customer-wise Subsidiary Ledgers
Individual deposit and advance account ledgers.
Bill Registers
Track bills purchased, discounted and collected on behalf of customers.
Statutory Returns
Periodic returns (e.g., under Section 42(2), RBI Act) reporting key balance-sheet aggregates to RBI.
5 Form A and Form B â Preparation & Presentation
Under the Third Schedule to the Banking Regulation Act, 1949, a bank's financial statements are built from a fixed set of numbered Schedules:
Form A â Balance Sheet
12 Schedules covering Capital, Reserves, Deposits, Borrowings, Other Liabilities on one side, and Cash, Investments, Advances, Fixed & Other Assets on the other.
Form B â Profit & Loss Account
4 Schedules (13â16) covering Interest Earned, Other Income, Interest Expended, and Operating Expenses.
6 Accounting Treatment of Specific Items
Income Recognition on NPAs (IRAC Norms)
Interest on a Non-Performing Asset is recognised only on actual realisation (cash basis) â not on accrual, as for performing assets.
Held to Maturity (HTM)
Investments intended to be held till maturity â carried at acquisition cost/amortised cost, not marked to market.
Available for Sale (AFS)
Investments not classified as HTM/HFT â marked to market periodically, with net depreciation charged to P&L.
Held for Trading (HFT)
Investments held for short-term trading gains â marked to market frequently.
JAIIB tip: The IRAC-based, cash-basis recognition of NPA interest is one of the sharpest departures from normal accrual accounting anywhere in AFM â and one of the most frequently tested nuances.
7 Profit & Loss Account of a Bank
Schedule
Head
Contains
Schedule 13
Interest Earned
Interest on advances, income on investments, interest on RBI balances
Schedule 14
Other Income
Commission/exchange/brokerage, profit on sale of investments, profit on exchange transactions
Schedule 15
Interest Expended
Interest on deposits, RBI/inter-bank borrowings, others
Schedule 16
Operating Expenses
Staff cost, rent/taxes, printing/stationery, depreciation, auditor's fees, other expenditure
Sch. 6 Cash & Balances with RBI, Sch. 7 Balances with Banks & Money at Call, Sch. 8 Investments, Sch. 9 Advances, Sch. 10 Fixed Assets, Sch. 11 Other Assets
Off-Balance Sheet
Sch. 12 Contingent Liabilities, plus Bills for Collection
9 Notes to Accounts & Basel III Disclosures
NPA Movement & PCR
Disclosure of gross/net NPA movement and Provisioning Coverage Ratio.
Restructured Accounts
Details of accounts restructured during the year.
CRAR / Capital Adequacy
Capital to Risk-weighted Assets Ratio under Basel III norms.
LCR & NSFR
Liquidity Coverage Ratio and Net Stable Funding Ratio, published under Basel III Pillar 3.
JAIIB tip:Basel III Pillar 3 disclosures (capital adequacy, leverage ratio, liquidity ratios, risk-weighted asset breakdown) must be published on the bank's own website, as mandated by RBI's Master Circular on Disclosure in Financial Statements â going beyond what appears in the printed annual report.
10 Listed Banks & Ind AS Status
Banks whose shares are listed on a stock exchange carry additional disclosure obligations under SEBI's LODR Regulations â quarterly financial results, related-party transaction disclosures, and a corporate governance report â layered on top of RBI's own requirements.
JAIIB tip (recap): Despite being originally targeted for FY 2018-19, Ind AS implementation for Scheduled Commercial Banks remains deferred by RBI, pending required legislative amendments to the Banking Regulation Act and related laws â banks continue reporting under the traditional AS/Third Schedule framework.
â Key Takeaways
Banks must prepare accounts in Form A (Balance Sheet) and Form B (P&L) under the Third Schedule, audited and filed with RBI within 3 months of year-end (Sections 29â31, BR Act, 1949).
NPA interest is recognised only on actual realisation (IRAC norms) â a key departure from accrual accounting.
Investments are classified as HTM, AFS, or HFT, each with distinct valuation treatment.
The P&L runs on Schedules 13â16; the Balance Sheet runs on Schedules 1â12, plus off-balance-sheet items.
Basel III Pillar 3 disclosures (CRAR, LCR, NSFR) must be published on the bank's website, beyond the printed annual report.
Ind AS implementation for banks remains deferred by RBI, pending legislative changes.
đ Top 50 JAIIB-Style MCQs on Final Accounts of Banking Companies
Test your understanding with these 50 practice MCQs, closely modelled on the pattern expected in the JAIIB AFM exam â including combination-answer questions. Each question has 5 options â the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.
đĻ Definition and Functions of a Bank
1 "Banking" is defined under which Section of the Banking Regulation Act, 1949?
A. Section 5(b)
B. Section 29
C. Section 35
D. Section 22
E. Section 49
Answer: A. Section 5(b) defines "banking."
2 Which of the following are agency functions of a bank? (i) Collection of cheques (ii) Remittance of funds (iii) Accepting deposits
A. (i) only
B. (i) and (ii) only
C. (iii) only
D. All of (i), (ii) and (iii)
E. None of these
Answer: B. Collection and remittance are agency functions; accepting deposits is a primary function.
3 Issuing a Letter of Credit is an example of a bank's:
A. Primary function
B. General utility function
C. Agency function
D. Statutory function only
E. Not a banking function at all
Answer: B. LC issuance is a general utility function.
4 Deposits accepted by a bank must be:
A. Withdrawable by cheque, draft, order or otherwise
B. Non-withdrawable under any circumstance
C. Repayable only after 10 years
D. Convertible into equity automatically
E. Held only in foreign currency
Answer: A. Deposits must be withdrawable per the statutory definition.
5 The purpose of accepting deposits, per the statutory definition, is for:
A. Lending or investment
B. Charitable donation only
C. Government taxation
D. Personal use by bank employees
E. Speculative trading only
Answer: A. Deposits are accepted for lending or investment.
đ Statutory Requirements
6 Preparation of Balance Sheet and P&L in Forms A and B is mandated under:
A. Section 29, BR Act, 1949
B. Section 30, BR Act, 1949
C. Section 31, BR Act, 1949
D. Section 35, BR Act, 1949
E. Section 5(b), BR Act, 1949
Answer: A. Section 29 mandates Forms A and B.
7 The requirement that bank accounts be audited by a qualified auditor is under:
A. Section 29
B. Section 30
C. Section 31
D. Section 35
E. Section 22
Answer: B. Section 30 mandates a qualified auditor.
8 Under Section 31, audited accounts must be submitted to RBI within:
A. 1 month
B. 3 months (extendable by RBI)
C. 6 months, no extension possible
D. 12 months
E. There is no time limit
Answer: B. 3 months, extendable further by RBI.
9 The bank's accounting year, per current practice, ends on:
A. 31 December
B. 31 March
C. 30 June
D. 30 September
E. There is no fixed year-end
Answer: B. The accounting year ends 31 March.
10 After filing with RBI, a bank's accounts must also be:
A. Kept permanently confidential
B. Published
C. Destroyed after 1 year
D. Shared only with the Notary Public
E. Submitted only to competitor banks
Answer: B. Accounts must be published.
âī¸ Significant Features of Bank Accounting
11 Unlike other companies, a bank's Balance Sheet/P&L format is:
A. Freely designed by the bank
B. Mandatorily fixed under Forms A and B
C. Designed by the bank's largest shareholder
D. Not regulated at all
E. Set individually by each branch
Answer: B. Forms A and B mandate a fixed format.
12 Income recognition on NPAs in bank accounting follows:
A. Pure accrual accounting, like any other asset
B. RBI's IRAC norms
C. US GAAP exclusively
D. No income recognition at all, ever
E. IFRS directly
Answer: B. IRAC norms govern NPA income recognition.
13 On a bank's Balance Sheet, which side is typically dominant?
A. Assets, due to fixed assets
B. Liabilities, due to deposits
C. Neither; both are always equal in composition
D. Contingent liabilities
E. Share capital
Answer: B. Deposits dominate the liabilities side.
14 The technology backbone through which most bank accounting entries flow today is:
A. Manual ledgers
B. Core Banking Solution (CBS)
C. Ledger-posting machines
D. Paper vouchers filed physically only
E. Telegraphic registers
Answer: B. CBS is the backbone of bank accounting today.
15 A significant feature distinguishing bank accounting from general company accounting is:
A. Regulatory income recognition rules for NPAs
B. Absence of any Balance Sheet
C. No requirement for an auditor
D. No statutory reporting to any regulator
E. Complete freedom in format design
Answer: A. Regulatory NPA income recognition rules are a key distinguishing feature.
đ Principal Books of Account
16 The master record consolidating all branch/departmental transactions in a bank is the:
A. Bill Register
B. General Ledger / Day Book
C. Statutory Return
D. Notes to Accounts
E. Auditor's Report
Answer: B. The General Ledger/Day Book is the master record.
17 Individual customer deposit and advance accounts are maintained in:
A. Customer-wise Subsidiary Ledgers
B. The Auditor's Report only
C. Basel III disclosures
D. Schedule 12 only
E. The Director's Report
Answer: A. Subsidiary ledgers hold individual account records.
18 Bills purchased, discounted and collected on customers' behalf are tracked in:
A. Bill Registers
B. Reserve & Surplus Schedule
C. Notes to Accounts only
D. Capital Account
E. Contingent Liabilities Schedule exclusively
Answer: A. Bill Registers track such bills.
19 Periodic statutory returns reporting key aggregates to RBI are filed under provisions such as:
A. Section 42(2) of the RBI Act
B. Section 92 of the Income-tax Act
C. Section 5 of the NI Act
D. Section 135 of the Companies Act
E. Section 53 of the Companies Act
Answer: A. Section 42(2) of the RBI Act mandates such returns.
20 Principal books of account in a bank primarily serve to:
A. Replace the need for external audit
B. Provide the underlying records from which Forms A and B are prepared
C. Eliminate the need for CBS
D. Serve only a marketing purpose
E. Have no connection to financial statements
Answer: B. They underpin the preparation of Forms A and B.
đ Form A and Form B
21 Form A of the Third Schedule prescribes the format for:
A. The Profit & Loss Account
B. The Balance Sheet
C. The Auditor's Report
D. The Director's Report
E. The CSR Report
Answer: B. Form A is the Balance Sheet format.
22 Form B of the Third Schedule prescribes the format for:
A. The Balance Sheet
B. The Profit & Loss Account
C. The Cash Flow Statement
D. The Funds Flow Statement
E. The CSR Report
Answer: B. Form B is the P&L format.
23 How many numbered Schedules make up Form A (the Balance Sheet)?
A. 4
B. 8
C. 12
D. 16
E. 20
Answer: C. Form A comprises 12 Schedules.
24 Form B (P&L) is built around Schedules numbered:
A. 1 to 4
B. 5 to 8
C. 9 to 12
D. 13 to 16
E. 17 to 20
Answer: D. Schedules 13-16 make up Form B.
25 The Third Schedule to the Banking Regulation Act, 1949 is the source for:
A. Both Forms A and B
B. Only tax computation rules
C. Only company law provisions
D. Only SEBI disclosure norms
E. Only IFRS standards
Answer: A. The Third Schedule is the source for both Forms A and B.
đĩ Accounting Treatment of Specific Items
26 Interest income on a Non-Performing Asset is recognised:
A. On accrual basis, like any performing asset
B. Only on actual realisation (cash basis)
C. Never, under any circumstances
D. In advance, before it is earned
E. Only if the borrower is a government entity
Answer: B. NPA interest is recognised only on realisation.
27 Investments a bank intends to hold till maturity are classified as:
A. Held for Trading (HFT)
B. Available for Sale (AFS)
C. Held to Maturity (HTM)
D. Contingent Investments
E. Deferred Investments
Answer: C. HTM investments are held till maturity.
28 HTM investments are carried at:
A. Fair market value, marked daily
B. Acquisition cost/amortised cost
C. Zero value
D. Replacement cost
E. Face value plus a fixed premium always
Answer: B. HTM investments are carried at cost/amortised cost.
29 AFS and HFT investments are:
A. Never revalued
B. Marked to market periodically/frequently
C. Carried permanently at face value
D. Excluded from the Balance Sheet entirely
E. Classified as fixed assets
Answer: B. AFS/HFT are marked to market.
30 IRAC stands for:
A. Income Recognition and Asset Classification
B. Interest Rate Adjustment Committee
C. Internal Reconciliation and Audit Council
D. Investment Rating Advisory Cell
E. India Revenue Accounting Code
Answer: A. IRAC is Income Recognition and Asset Classification.
đ Profit & Loss Account of a Bank
31 Interest on advances is reported under which Schedule?
A. Schedule 13 â Interest Earned
B. Schedule 14 â Other Income
C. Schedule 15 â Interest Expended
D. Schedule 16 â Operating Expenses
E. Schedule 9 â Advances (Balance Sheet)
Answer: A. Interest on advances is in Schedule 13.
32 Commission, exchange and brokerage income appear under:
A. Schedule 13
B. Schedule 14 â Other Income
C. Schedule 15
D. Schedule 16
E. Schedule 3
Answer: B. Commission/exchange/brokerage falls under Schedule 14.
33 Interest paid on deposits is reported under:
A. Schedule 13
B. Schedule 14
C. Schedule 15 â Interest Expended
D. Schedule 16
E. Schedule 3
Answer: C. Interest on deposits is in Schedule 15.
34 Staff cost and rent/taxes are reported under:
A. Schedule 13
B. Schedule 14
C. Schedule 15
D. Schedule 16 â Operating Expenses
E. Schedule 5
Answer: D. Staff cost and rent fall under Schedule 16.
35 The two broad heads of a bank's P&L are:
A. Income and Expenditure
B. Assets and Liabilities
C. Capital and Reserves
D. Deposits and Advances
E. Contingent Liabilities and Bills for Collection
Answer: A. A P&L is structured as Income vs Expenditure.
đī¸ Balance Sheet Items of a Bank
36 Deposits are reported under which Schedule?
A. Schedule 1
B. Schedule 2
C. Schedule 3
D. Schedule 9
E. Schedule 12
Answer: C. Deposits are in Schedule 3.
37 Advances (loans) are reported under which Schedule?
A. Schedule 3
B. Schedule 8
C. Schedule 9
D. Schedule 11
E. Schedule 12
Answer: C. Advances are in Schedule 9.
38 Investments are reported under which Schedule?
A. Schedule 6
B. Schedule 7
C. Schedule 8
D. Schedule 9
E. Schedule 10
Answer: C. Investments are in Schedule 8.
39 Contingent Liabilities are reported under which Schedule, as an off-balance-sheet item?
A. Schedule 9
B. Schedule 10
C. Schedule 11
D. Schedule 12
E. Schedule 5
Answer: D. Contingent Liabilities are in Schedule 12.
40 Reserves and Surplus are reported under:
A. Schedule 1
B. Schedule 2
C. Schedule 3
D. Schedule 4
E. Schedule 5
Answer: B. Reserves and Surplus are in Schedule 2.
đĸ Notes to Accounts & Basel III Disclosures
41 CRAR stands for:
A. Capital to Risk-weighted Assets Ratio
B. Current Ratio Adjusted for Risk
C. Credit Rating Adjustment Ratio
D. Cash Reserve Adequacy Rule
E. Capital Redemption Asset Ratio
Answer: A. CRAR is Capital to Risk-weighted Assets Ratio.
42 LCR and NSFR are disclosures relating to:
A. Liquidity
B. Depreciation policy
C. Share capital structure only
D. Tax computation
E. CSR spending
Answer: A. LCR and NSFR are liquidity ratios.
43 Basel III Pillar 3 disclosures must be published:
A. Only in the printed annual report
B. On the bank's own website, as mandated by RBI
C. Only to the bank's employees
D. Only to the Notary Public
E. Never published at all
Answer: B. Pillar 3 disclosures go on the bank's website.
44 Provisioning Coverage Ratio (PCR) disclosure relates to:
A. Fixed asset depreciation
B. Coverage of NPAs by provisions held
C. Share premium utilisation
D. CSR spending
E. Foreign exchange reserves
Answer: B. PCR shows how well NPAs are covered by provisions.
45 Notes to Accounts of a bank typically disclose: (i) NPA movement (ii) Restructured accounts (iii) Related party transactions
A. (i) only
B. (i) and (ii) only
C. (iii) only
D. All of (i), (ii) and (iii)
E. None of these
Answer: D. All three are typical Notes to Accounts disclosures.
Disclaimer: This article is prepared for educational and exam-preparation purposes only. Content reflects the Banking Regulation Act, 1949, RBI's IRAC/disclosure norms and Basel III framework, as of September 2026. Candidates should cross-check the latest official IIBF syllabus and current notifications before the exam.