Description
All requirements in the file attached
Word document
Words count :1800-2000
Similarity less than 5%
plagrisim report is needed
For any clarification please ask
Unformatted Attachment Preview
Purchase answer to see full attachment
Explanation & Answer
Attached.
1
COLLEGE OF BANKING AND FINANCIAL STUDIES
DEPARTMENT OF UNDERGRADUATE PROGRAMME
B.Sc. in Accounting, Auditing, and Finance
ASSIGNMENT 1 BRIEF – Individual Assignment
Assessment Component: 50%
Student Name
Semester
Three
Year
2019- 2020
(Summer Semester)
Assignment Title
Module
Banking and Insurance Companies Accounting
UG010 Banking and Insurance
Assessor:
Companies Accounting
Start Date:
23 July 2020
Due Date:
13 August 2020
Joyce
Noronha
Internal Verifier
Mr. H.
Lakmal
Student declaration:
I certify that the work contained in this assignment was researched and prepared by me:
Signature: ___________________________
Date: ___________________
BANKING AND INSURANCE COMPANIES ACCOUNTING
2
Task 1: The need for capital in banks
Capital is crucial since it is part of assets that could be utilized to reimburse its customers,
depositors, and other petitioners if a banking institution has insufficient liquidity because of losses
it endured in its tasks (Bitar et al., 2016). Capital does not comprise of claims by the equity holders
of the banks. Banks need capital to guarantee the survival or endurance of their business
undertakings why they experience unforeseen losses. Besides, banks need capital to make sure that
the unforeseen losses don’t prompt non-conformity with minimum capital requirement whereby
the shareholders will have to shift the bank’s control to the government. Banks need capital to
circumvent excessive financial expenses for other options of financing than the deposit options.
For instance, the bank will have to pay higher interest rates on the loans from different
banking institutions or bonds given by banks if the excess capital reserves of a bank are discovered
to be inadequate. Huge banks are interested in maintaining their good rankings and thus have
substantial excess capital reserves determined by the market forces (Bitar et al., 2016). Typically,
rating agencies make the demands about the excess capital reserves of a bank as a high rating
condition. Besides, adequate capital reserves help banks enter into massive exposures without the
need to raise other capital.
Alternatively stated, the capital of a bank is a cushion" for possible losses, and secures the
depositors, along with other lenders of the bank. That's why most nations characterize and track
CAR (capital adequacy ratios) to protect their depositors from upholding confidence within the
banking system. CAR, in general, is described as the ratio that establishes the capacity of a bank
to meet time liabilities and other risks like operational and credit risk.
Task 2: Five-step model of revenue recognition.
BANKING AND INSURANCE COMPANIES ACCOUNTING
3
Revenue recognition demonstrated the transfer of assured services or goods in an amount
which replicates ways in which an enterprise anticipated to be compensated. It has five
significant steps (Jones & Pagach, 2013). These steps are as follows:
Step 1: identifying contracts with customers
This revenue recognition step, for example, is typical for the franchisors since they contain
an inscribed franchise contract, which stipulated the obligations, the rights, together with the
payment terms of a party (Yeaton, 2015). Also, this agreement contains "commercial substance,"
implying that the cash flows of the two parties are anticipated to change due to the agreement.
Furthermore, the franchisors will have to take supplemental steps toward establishing the
collectability dependent on franchisee's credit underwriting.
Step 2: identifying the obligations of performance
This second step determines what is being provided or delivered to a consumer. It is one
of the progressively momentous changes since the contract could have a minimum of one
performance duty, and every duty/obligation will have to be quantified (Jones & Pagach, 2013).
An example of it is as follows. Take into account if a customer could benefit or use for the service
or good on its own. If they possibly could, that's perhaps a distinct performance obligation. For
instance, a client will agree with an agreement of purchasing equipment with a free maintenance
year.
Step three: determination of a transaction price
This step, on the other hand, needs an entity to establish a transaction price. A transaction
price, in general, refers to the consideration amount that an entity awaits to be entitled to in place
of promised services or goods (Yeaton, 2015). This amount excludes the amounts collected on the
BANKING AND INSURANCE COMPANIES ACCOUNTING
4
third party's behalf, for instance, the taxes imposed by the government. Commonly, an entity
should establish the amount of contemplation to which it anticipated to be eligible to acknowledge
revenue. For example, the transaction price may comprise of variable consideration, which must
be gauged either as the expected value, which signifies the sum or the aggregate of the probabilityweighted amounts for several probable outcomes. The possible amount signifies the quantity
possible in an array of conceivable amounts.
Step four: Allocation of the Transaction Price to Performance Obligations
If there exist several performance obligations, a transaction price should be assigned to
every performance obligation on a moderate standalone basis (Yeaton, 2015). Generally, the most
suitable way of doing this to compile the standalone of a performance obligation if it were to be
sold by entity distinctly. If the ...