Compilation

of
Bank Accounting
Reports
BBF 3-10S
Tuesday 6:00-9:00 PM
Prepared by Ivy Vanessa C. Sera & Angeline C. Ngayan
 GROUP 1: FLOW TRANSACTIONS IN A BANK
Alava, Ferly Jane V.
Estrella, Grenz Ezekiel F.
Lingad, Pauline Michaela S.

Cash Deposits
Cash deposit is defined as money that is injected into a checking, money market or savings account, either
via money transfer, ATM machine or through a bank teller.
 Receive cash, deposit slip, and passbook, if applicable, from the depositor or his authorized
representative.
 Review the deposit slip.
o Ensure that the following are clearly indicated on the deposit slip:
 current date
 account number
 account name
 deposit currency
 total cash deposit
o Ensure that deposit slip is free from alterations. If there are alterations, request the
client/authorized representative to sign next to the alterations.
 Ensure that the account name and account number on the deposit slip matches with that in the
system.
 Count the cash in the presence of the depositor or representative
 Ensure that the cash count tallies with the amount written on the deposit slip.
 For dollar cash deposit, request the depositor to indicate the serial number of each foreign
currency bill at the back of the FCDU
 Acknowledgment Receipt form and he shall likewise be required to sign on the form.
 Place the cash received inside the cash drawer.
 Perform passbook updating through if applicable.
 Forward the duplicate copy of validated deposit slip and passbook (if applicable) to
depositor/representative.
 Temporarily safe keep the original copy of the deposit slip in the posting media rack.

Check Deposits
 Processing of On-Us Check Deposits
o Receive check, deposit slip and passbook, if applicable, from the depositor.
o Review the deposit slip.
o Ensure that the following details are clearly indicated on the deposit slip:
 Current date
 Account number
 Account name
 Deposit currency
 Type of check (On-Us)
 Drawee bank & branch
 Check number
 Amount per check
 Total check deposit
o Ensure that the deposit slip is free of alterations. If there are any alterations, request the
depositor/representative to sign next to the alterations.
 o Ensure that the total amount indicated on the deposit slip tallies with the total amount of
check/s deposited. Otherwise, return the deposit slip and check to the depositor for
preparation of another slip.
o Ensure that the account number and account name written on the deposit slip is the same as
account number and account name in the system. Otherwise, return the deposit slip to the
depositor for preparation of another slip.
o Examine the check for irregularities such as:
 Postdated or stale-dated
 amount in words and figures differ
 with unsigned alterations
 no payee
 no date
 no signature
 returned more than twice
 already returned as stop payment or closed account
o In the case of Crossed Checks, ensure that the account number indicated is under the account
of the named payee.
o Perform blacklight verification if:
 Exceeds the enforced amount of check
 Check being presented is suspicious.
 Processing of Off-Us Check Deposits
o Receive check, deposit slip and passbook, if applicable, from the depositor.
o Review the deposit slip and ensure that each check is classified according to clearing area (i.e.
local, regional, regional integrated clearing or out-of-town).
NOTE: A separate deposit slip must be accomplished for each type of check.
 Ensure that the following details are clearly indicated on the deposit slip:
 Current Date
 Account Number
 Account Name
 Deposit Currency
 Type of check
 Drawee Bank & Branch
 Check Number
 Amount per check
 Total check deposit
 Ensure that deposit slip is free of alterations.
 If there are any alterations, request the depositor to sign next to the alterations.
 Ensure that the total amount indicated on the deposit slip tallies with the total amount
of check/s deposited. Otherwise, return the deposit slip and check to the depositor for
preparation of another slip.
 Ensure that the account number and account name written on the deposit slip is the
same as account number and account name in the check.
 Otherwise, return the deposit slip to the depositor for preparation of another slip.
o Examine the check for irregularities such as:
 postdated, stale-dated or out-of-date
 amount in words and figures differ
 with unsigned alterations
 no payee
  no date
 no signature
 returned more than twice
 already returned as stop payment or closed account
 Ensure that the depositor’s complete account number is indicated on the reverse side of
the check. Otherwise, request the depositor to indicate the account number on the
check.
 In the case of Crossed Checks, ensure that the account number indicated is under the
account of the named payee.
o Stamp the reverse side of each check with “Bank Endorsement” stamp.
o If transaction is valid for processing, transact it.

Withdrawals
A withdrawal involves removing funds from a bank account, savings plan, pension or trust.
 Receive withdrawal slip and passbook, for passbook-based accounts, from the accountholder or his
authorized representative.
 Review the withdrawal slip.
o Ensure that the following are clearly indicated on the withdrawal slip:
 current date
 account number
 account name
 withdrawal currency
 matching amount in words and figures
 signature/s of the accountholder/s
o Ensure that withdrawal slip is free from alterations. If there are alterations, request the client to
sign next to the alterations.
 For passbook-based accounts:
o The account name and account number on the passbook are the same with that of the
withdrawal slip.
 For withdrawals through representatives:
o Ensure that account number on the withdrawal slip belongs to the same branch. If withdrawal
is an inter branch transaction, secure approval from officer.
o Ensure that the following are clearly indicated on the “Authorization: Withdrawal Through
Representative” portion of the withdrawal slip:
 Name and signature of the authorized representative
 Signature/s of the accountholder/s
o Request the authorized representative to present one (1) valid ID. Request another branch
personnel to photocopy the ID presented for branch file.
o Ensure that the name and signature of the authorized representative on the withdrawal slip are
the same as the name and signature on the ID presented. Affix initials beside the name of the
authorized representative on the withdrawal slip to signify verification made.

Encashment
Encashment is to exchange a check for money.
 Receive check for encashment from payee.
 Review details of check to ensure that:
o payee is the bearer or Cash
o alterations are signed
 o check is not crossed
o amount in words and in figures are the same
o check is not postdated or stale dated or invalidated
o check is endorsed by the payee
o check is signed
 Require payee to present one (1) valid ID. Request another branch personnel to photocopy the ID
presented.
 Request payee to indicate the following details at the back of the check
o payee’s name
o address
o contact number
o signature
 Compare signature appearing at the back of the check against signature on the ID presented.
 Access the system to transact the encashment.
 GROUP 2: FLOWS OF TRANSACTIONS IN A BANK
Balidiong, Charlene C.
Isla, Dominic B.
Vergara, Alyanna Melissa P.

Bank accounting cycle is a sequence of accounting procedures employed to process bank transactions during
the fiscal period, which in the end the ultimate output is the production cost. It covers the preparation of bank
tickets, preparation of batch sheet, preparation of proof sheet, posting, adjusting entries, and the preparation
of trial balance.

BANKS are entities engaged in the lending of funds obtained in the form of deposits.

Deposits form the lifeblood of a banking institution. It is for this reason that a bank must have substantial
amount of deposits to prove its worth in the financial system. A bank will not succeed in its task of dealing in
credit without deposits or very little of it. Its success, therefore, will depend largely on its ability to outdo
other banks in attracting customers.

Economic Scale of Lending

Client’s Deposit with the Bank Amount Lent Out

Amount ………….. 1,000,000 a) 500,000 at 15% = 75,000

Interest Rate ……. 10% b) 750,000 at 15% = 112,500

Interest expense … 100,000 c) 1,000,000 at 15% = 150,000

What are the different transaction types?

Here you will find a list of the various types that can be assigned to transactions in iBank. The definitions
provided for banking transaction types are relatively loose; although some types force transaction amounts to
be either positive or negative, the differences between these types are for the most part nominal. The
transaction types for investment transactions are more strictly defined and affect the behavior of the
transactions, so you should use discretion when choosing the appropriate type for these transactions.

Banking account transaction types:

ATM: Deposit or withdraw funds using an ATM.

Charge: Record a purchase on a credit card or withdraw funds using a debit card. Check: Withdraw funds by
writing a paper check. Choosing this type will automatically insert a number in the '#' field (the next number in
sequence from the last check recorded).

Deposit: Add funds to an account by any method.

Online: Withdraw funds through a web-based store or online banking service.

POS: Withdraw funds through a point-of-sale transaction (typically a cash or debit card purchase).

Transfer: Move funds from one account to another (for more information, see Account Transfers).

Withdrawal: Deduct funds from an account by any method.

The Double Entry Method of recording Bank Transactions

Banks adopt the double-entry method in recording bank transactions. This method of recording gives due
recognition to the two-fold effect of a transaction. Two values are involved: 1) value received and 2) value
parted with. The double-entry method records the value received as debit and the value parted with as credit.

However, recording such entry, banks do not use the journal. Instead, bank tickets (debit & credit) are directly
prepared. The particulars of the transactions are typed in the tickets, which serve as the book of original entry
and as a basis of posting to the ledger.

The most commonly used bank accounting records are deposit slip, withdrawal slip, debit ticket and credit
ticket, debit advice and credit advice, batch sheet or T-account, proof sheet and trial balance. Deposit slip is a
bank form used in depositing cash or checks.

Bank Accounting Records

The deposit slip is usually in different colors for purposes of identification as to the particular account, savings
or current.

Withdrawal slip is the bank form used in withdrawing money from the bank under savings account. In case of
checking account, withdrawals are done through encashment of checks.

Debit ticket and credit ticket are bank forms used in lieu of the journal. Under the ticket system of accounting,
bank transactions are directly recorded in the tickets that serve as a basis in posting to the subsidiary ledgers.
At the end of the day, all machine totals representing deposit/withdrawals are summarized and transferred in
the tickets.

Debit advice and credit advice – bank forms used in recording transactions taken up in the books of the bank
but were not taken up in the client books. The advice is for purposes of informing the client to update his
records and to reconcile it with the books of the bank.

Batch sheet or T-account is a bank form used in summarizing bank transactions reduced into bank tickets
before it is entered in the proof sheet.

Proof sheet is the book of original entry. It is the main source of posting to the general ledger accounts.

Trial balance is a list of general ledger accounts. It facilitates the preparation of the daily financial in order to
determine the legal reserved requirement of the central bank.

Under the ticket system of the prescribed accounting forms od the Department of Savings and Loan of the
Bangko Sentral, the following are the advantages of the use of tickets:
 1. It enables the sortation and classification of bookkeeping and the consolidation in one entry or two or
more transactions of the same kind;
2. It enables the determination of the exact financial position and results of operation of financial
institutions t the close of business day; and
3. It facilitates the recording of transactions in the day of their occurrence and the daily balances of the
general and subsidiary ledgers.

Bank's Debits and Credits

When you hear your banker say, "I'll credit your checking account," it means the transaction will increase your
checking account balance. Conversely, if your bank debits your account (e.g., takes a monthly service charge
from your account) your checking account balance decreases.

If you are new to the study of debits and credits in accounting, this may seem puzzling. After all, you learned
that debiting the Cash account in the general ledger increases its balance, yet your bank says it
is crediting your checking account to increase its balance. Similarly, you learned that crediting the Cash
account in the general ledger reduces its balance, yet your bank says it is debiting your checking account to
reduce its balance.

Although the above may seem contradictory, we will illustrate below that a bank's treatment of debits and
credits is indeed consistent with the basic accounting principles you learned. Let's look at three transactions
and consider the resultant journal entries from both the bank's perspective and the company's perspective.

Transaction #1

Let's say that your company, Debris Disposal, receives P10,000 of currency from a customer as a down
payment for a future site clean-up service. When the money is received your company makes the following
entry:

(Debris Disposal's journal entry)

Because it has received cash, Debris Disposal increases its Cash account with a debit of P10,000. The rules of
double entry accounting require Debris Disposal to also enter a credit of 10,000 into another of its general
ledger accounts. Since the company has not yet earned the 10,000, it cannot credit a revenue account.
Instead, the liability account Unearned Revenues is credited because Debris Disposal has a liability to do the
work or to return the 10,000. (An alternate title for the Unearned Revenues account is Customer Deposits.)

Now let's say you take that 10,000 to Trustworthy Bank and deposit it into Debris Disposal's checking account.
Trustworthy Bank debits the bank's general ledger Cash account for 10,000, thereby increasing the bank's
assets. The rules of double entry accounting require the bank to also enter a credit of P10,000 into another of
bank's general ledger accounts. Because the bank has not earned the 10,000, it cannot credit a revenue
account. Instead, the bank credits its liability account Deposits to reflect the bank's obligation/liability to
return the P10,000 to Debris Disposal on demand. In general journal format the bank's entry is:

(Trustworthy Bank's journal entry)

As the entry shows, the bank's assets increase by the debit of P100 and the bank's liabilities increase by the
credit of P100. The bank's detailed records show that Debris Disposal's checking account is the specific liability
that increased.

Transaction #2

Let's say Trustworthy Bank receives a P10,000 wire transfer on your company's behalf from a person who
owes money to Debris Disposal. Two things happen at the bank: (1) The bank receives P10,000, and (2) the
bank records its obligation to give the money to Debris Disposal on demand. These two facts are entered into
the bank's general ledger as follows:

(Trustworthy Bank's journal entry)

The debit increases the bank's assets by P10,000 and the credit increases the bank's liabilities by P10,000. The
bank's detailed records show that Debris Disposal's checking account is the specific liability that increased.

At the same time the P10,000 wire transfer is received at the bank, Debris Disposal makes the following entry
into its general ledger:

(Debris Disposal's journal entry)

As a result of collecting P10,000 from one of its customers, Debris Disposal's Cash balance increases and its
Accounts Receivable balance decreases.

Transaction #3

Many banks charge a monthly fee on checking accounts. If Trustworthy Bank decreases Debris Disposal's
checking account balance by 500 to pay for the bank's monthly service charge, this might be itemized on
Debris Disposal's bank statement as a "debit memo." The entry in the bank's records will show the bank's
liability being reduced (because the bank owes Debris Disposal 500 less). It also shows that the bank earned
revenues of 500 by servicing the checking account.

(Trustworthy Bank's general ledger)

On your company's records, the entry will look like this:

(Debris Disposal's general ledger)

Debris Disposal's cash is reduced with a credit of P500 and expenses are increased with a debit of 500. (If the
amount of the bank's service charges is not significant a company may debit the charge to Miscellaneous
Expense.)

Bank's Balance Sheet

Accounts such as Cash, Investment Securities, and Loans Receivable are reported as assets on the bank's
balance sheet. Deposits are reported as liabilities and include the balances in its customers' checking and
savings accounts as well as certificates of deposit. In effect, your bank statement is just one of thousands of
subsidiary records that account for millions of pesos in Deposits that a bank owes to its customers.

Nature of Adjusting Entries

At the end of the accounting period, many of the accounts listed on the trial balance can be transferred,
without change, to the financial statements. However not all of these accounts and their corresponding
amount are necessary correct. To bring the accounts and amount up to date as well as to assure proper
matching of revenues and expenses, adjusting entries have to be made.
Bank Accounting Entries that need Adjustments

Adjusting entries are those entries needed to bring the accounts up to date.

a. Accruals
b. Prepayment or; if at the time of payment an asset account is debited

1. For accrued Liabilities (Accrued Expenses)

There are some expenses that accrue from day to day but are usually recorded only once when
they are paid. Ex: salaries and interest on time/savings deposit. The amount of such paid accrued
and unpaid items at the end of the accounting period are both an expense and a liability. It is for
this reason that such accruals are called accrued liabilities or accrued expense.

Example:
Prepaid Interest xxx

Interest Payable xxx

c. Pre-collection, if at the time of collection a liability account is credited.

2) For Accrued Assets (Accrued Revenues)

All assets belonging to the business and all revenues earned must be recorded. However, there
are cases that revenues are only recorded when cash is received. Thus, at the end of the period there
maybe items of revenue that may not have been recorded. In such a case the amount of revenue must
be recorded by debiting the asset account and crediting a revenue account. Because of the dual nature
of such accruals, they are called accrued assets or accrued revenues.

Example:

Accrued Interest Receivable xxx

Interest Income xxx

Adjusting Entries That Need No Reversal

a. Provision for depreciation

Assume that the total fix assets (office machines) of BPI is valued at P600, 000.00 with a depreciable
life of 10 years. The annual depreciation is therefore 60,000.00 (600,000.00 over 10 years) or a
monthly depreciation of P5000. The monthly adjusting entry to update the fix asset account and at the
same time recognize depreciation expense is as follows:

Expense – depreciation (office machines) 5,000

Allowance for Depreciation-FA 5,000

 Ledger:

When the adjusting entry for depreciation is posted, the balance of the fixed asset account
(office machines) will be as follows:

b. Provision for Uncollectible Accounts

Assume that the total loan of BPI as of June 1, 1985 is P1, 200, 000. Management believes that
not all the loans are 100% collectible. Hence, to provide a fair presentation of collectible loans,
an allowance for bad debts is provided representing a percentage of the estimated portion of
the receivables that are uncollectible.

Assuming therefore that 10% of the total loans are uncollectible yearly, the amount of
P120,000 (1,200,000 x 10%) represents the allowance for bad debts or 10,000/month.

The adjusting entry will be as follows:

6/30 Expense- bad debts 10,000

Allowance for bad debts 10,000

Ledger:

When the adjusting entry for uncollectible account is posted, the up-dated balances of the loans are as
follows:

Debit Credit Balance

Loans 1,200,000

Allowance for uncollectible account 10,000 1,900,000

 GROUP 3: TYPES OF LOANS
EXTENDED BY BANKS TO WORTHY BORROWERS

Cachero, Mariela D.
Galvez, Aaron Ace C.
Napitan, Marniel Grace

BANK OF THE PHILLIPINE ISLANDS

Bank of the Philippine Islands is the oldest bank in the Philippines still in operation and is the country's
third largest bank in terms of assets, the country's largest bank in terms of market capitalization, and the
country's most profitable bank.

Personal loan
The need to advance and progress is natural, especially for those who are working towards building a better
life for their family. Sometimes, monthly paychecks can’t support the plans one may have to create new
income generators like businesses or investments. With the right cash flow plan and discipline, one can always
engage in getting a personal loan to fund a worthy ‘life project’.
With BPI Personal loans, deciding is not a tough call because of its excellent features. Clients may get up to 3
times of gross monthly income, ranging from PHP 20,000 to PHP 1,000,000. Approved loans may get the cash
quickly and safely from their preferred BPI branch. And anyone can experience flexibility by choosing whether
to pay monthly installments in 12, 18, 24, 30 or 36 months. And very low interest rates and easy payment
schemes can be expected. Payments can also be automatically debited from any BPI deposit account. Loan
payments and outstanding balances maybe monitored from anywhere, anytime via BPI Online Banking or 89-
100 BPI Express Phone. Balances may also be checked from a client’s mobile phone to ensure funding of
monthly payments.

The required documents for your BPI Personal Loan application below:
Employee/Professional
1.Government-issued photo-bearing ID (Passport, Driver's License, SSS, PRC, etc.)
2. 3 months original pay slip and/or Latest Income Tax Return with BIR or Bank stamp (BIR Form 2316)
Self-Employed
1.Government-issued photo-bearing ID (Passport, Driver's License, SSS, PRC, etc.)
2. Audited Financial Statements for the last 3 years
3. Latest Income Tax Return (BIR Form 1700 / 1701)
4. DTI Business Permit or SEC Registration
Overseas Worker
1.Government-issued photo-bearing ID (Passport, Driver's License, SSS, PRC, etc.)
2. Agency based: POEA contract or Employment contract with boarding date
Direct hire: Proof of remittance, POEA OFW Information Sheet or POEA Overseas
Employment Certificate and Work Contract

Housing Loan
A comfortable life – this is what all of us aspire for. To achieve this, it all starts with owning a home. Owning
property is an affirmation of hard work and well-placed earnings put in a worthy investment. For those stuck
in a rent situation, make a move now! Owning a home is now made easy and possible with BPI Family Housing
Loan.
BPI Family Housing Loan is ideal for earners with conservative buying patterns, because it can be customized.
Every loan package is tailor-fitted to the needs and current spend capabilities of the customer. With simple
requirements, one can easily apply for a home loan.
It’s Fast! Get a reply within 5 working days after submitting complete loan documents
It’s easy to apply! Go online at www.bpiloans.com or discuss options with partner brokers and developers.
And with many branches nationwide, one can just visit to inquire.
It’s affordable! Never underestimate the power of your income. By making the best decision of getting a BPI
Family Housing Loan, you get to enjoy low rates, down payment options as low as 20% and flexible payment
terms payable up to 25 years.
So why rent if you can afford to get your own home? Find out if you're ready for a housing loan now.

A. Housing Loan Application Form

 Duly accomplished Application Form

 2 valid Identitifcation Cards
 If married, both spouses to sign on the application form
 If with co-borrower or co-mortgagor, separate application form is needed

B. Income Documents

If locally employed (working within the Philippines)

 Certificate of Employment (COE) indicating salary, position and length of service

 Latest Income Tax Return (ITR) for the last 2 years

If Expat Pinoy (Overseas Filipino Worker)

 Contract / Certificate of Employment (COE) authenticated by Philippine Consulate

 Crew Contract and Exit Pass validated by POEA (seaman)
 Proof of monthly remittances
  Notarized or authenticated Special Power of Attorney (BPI FSB Format)

If Self-Employed

 Articles of Incorporation and By-Laws with SEC Registration Certificate

 Audited Financial Statements for the last 2 years
 DTI Registration
 Income Tax Return w/ Statement of Assets and Liabilities (SAL) for the last 2 yrs
 List of Trade References (at least 3 names with telephone nos. of major suppliers/customers)
 Bank Statements for the past 6 months

If Practicing Doctor

 Clinic address/es and schedule

If from Commission

 Vouchers or Bank Statements (last 6 months reflecting commission income)

If from Rental of Properties

 Rental/Lease Contract (indicating name of tenants and rental amounts with complete addresses of
properties being rented)
 Photocopy of Title (TCT/CCT)

C. Collateral Documents

 Clear copy of Owner’s Duplicate Copy of TCT/CCT

 Lot Plan with Location/Vicinity Map certified by licensed Geodetic Engineer
 Photocopy of Tax declaration / Tax receipts / Tax clearance
 Endorsement Letter / computation sheet / Contract to Sell from developer stating the contract price
(for accredited developer/project)
AUTO LOANS

Owning a car provides convenience, luxury of space, protection from harmful elements when traveling and the
ability to get from one place to another faster without the hassles of having to wait or stand on line.

With a car, one can enjoy traveling with friends or family to any destination at any time of their choosing.

With the BPI Family Auto Loan, purchasing a dream car can easily be achieved and its advantages can be
enjoyed today with the incentive of being able to choose a model that may otherwise be unaffordable. This
saves any buyer from getting an older car model that may result in more costly repairs. The best thing about
getting a BPI Family Auto Loan is that it frees up your money for other expenditures.

BPI Family Auto Loan has a faster process turnaround time, with low interest rates, low mortgage fees and a
more personalized service. The client gets the best deal in terms of price and discounts.

Apply online through www.bpiloans.com, or visit over 800 BPI/BFB branches or over 300 partner auto
dealerships nationwide. BPI Family Auto Loan has easy payments options, affordable down payment options,
and special features and promos to make car ownership easier.
A. Auto Loan Application Form

 Duly accomplished Application Form.

 2 valid Identitifcation Cards.
 If married, both spouses to sign on the application form.
 If with co-borrower or co-mortgagor, separate application form is needed.

B. Income Documents
If locally employed (working within the Philippines)

 Certificate of Employment (COE) indicating salary, position and length of service

 Latest Income Tax Return (ITR)

If Expat Pinoy (Overseas Filipino Worker)

 Contract / Certificate of Employment (COE)

 Crew Contract and Exit Pass validated by POEA (seaman)
 Proof of monthly remittances
 Notarized or authenticated Special Power of Attorney (BPI FSB Format)
 Duly accomplished Auto Loan Application form required by POEA

If Self-Employed

 Articles of Incorporation and By-Laws with SEC Registration Certificate.

 G.I.S. (General Information Sheet).
 Audited Financial Statements for the last 2 years.
 DTI Registration.
 Income Tax Return w/ audited financial statements for the last 2 yrs.
 List of Trade References (at least 3 names with telephone nos. of major suppliers/customers).
 Bank Statements for the past 6 months.

If Practicing Doctor

 Clinic address/es and schedule.

 Income Tax Return w/ audited financial statements for the last 2 yrs.
If from Rental of Properties

 Rental/Lease Contract (indicating name of tenants and rental amounts with complete addresses of
properties being rented)
 Photocopy of Title (TCT/CCT)

Ka-negosyo business loans

STANDARD REQUIREMENTS
GENERAL DOCUMENTS

· Duly Accomplished Application Form

· Photocopy of Income Tax Return (ITR) for the last 3 years

· Bank Statements for the past 6 months

· Copy of Marriage Contract, if applicable

REAL ESTATE COLLATERAL DOCUMENTS

· Two (2) Photocopies of Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT)-
Owner's duplicate copy

· Photocopy of Tax Declaration (land and building, if applicable)

· Payment of Appraisal Fee

FOR FRANCHISING LOAN

· Franchise Endorsement / Contract with Franchise Owner

FOR CONSTRUCTION / DEVELOPMENTAL LOAN

· Building Plan

· Building Specifications

· Bill of Materials

· Development Permit

· Subdivision Plan

· Feasibility Study (for developmental loan only)

ADDITIONAL REQUIREMENTS
FOR EXISTING ENTREPRENEURS

· Company Profile

· Photocopy of BIR-stamped financial statements for the last 3 years

· Photocopy of Business Registration Certificate / Business Permit / Latest General Information Sheet

· Photocopy of SEC-validated Articles of Incorporation / By-Laws, if corporation

· Resume of Major Stockholders, if corporationFOR EMPLOYED / FIRST TIME ENTREPRENEURS

· Updated Certificate of Employment indicating salary, position, and tenure

· Resume of Loan Applicant

· Certificate of Employment authenticated by Consul Office, if Overseas Filipino

 BDO Unibank, Inc.

BDO Unibank, Inc. is the largest bank in the Philippines and a member of the SM Group of Companies, one of
the country's largest and most successful conglomerates owned by tycoon Henry Sy, Sr.

A loan is a debt provided by an entity (organization or individual) to another entity at an interest rate, and
evidenced by a promissory note which specifies, among other things, the principal amount of money
borrowed, the interest rate the lender is charging, and date of repayment.

Bank loans come in many shapes and sizes, and deciding what type of loan you need can be a little
overwhelming. Banks loan money to individuals and businesses to purchase homes, businesses and cars, and
to pay for college. Loan types include fixed rate, variable rate, installment, secured, unsecured and
convertible. Each type of loan has unique repayment terms, and understanding those terms can make
choosing the right loan easier.

TYPES OF LOANS EXTENDED BY THE BANKS TO THE WORTHY BORROWERS

BDO Loans

 Personal Loan
 Auto Loan
 Home Loan
 SME Loan

1) Personal Loan
o Home Renovation / Upgrades
o Tuition / Education
o Furniture
o Appliances / Electronic Gadgets
o Vacation / Travel
o Special Events
o Health and Wellness
o Medical Emergencies

Benefits

Flexible loan amounts

Minimum of P10,000

Maximum of P 1,000,000

Fixed monthly payments – pay the same amount every month with any of the following flexible payment
terms:

3 months (for Unsecured)

6 months

12 months

18 months

24 months

36 months
 Tenor Factor Rate Monthly Add-on Rate Effective Rate/Annum

6 0.179667192 1.30% 26.27%

12 0.095836960 1.25% 26.63%

18 0.068058532 1.25% 26.76%

24 0.054167533 1.25% 26.58%

36 0.040279967 1.25% 25.98%

Application Requirements:

Basic Requirement

 Filipino citizen or foreigner residing in the Philippines for more than two (2) years
 Must be 21 years old at time of application but no more than 70 years old upon maturity
 Minimum Gross Annual income
 P120,000 for Salaried Employees
 P400,000 for Self-Employed / Professionals
 Must have a mobile phone and at least 1 landline phone at either residence or office
 Residence or office must be within BDO serviceable area
 Additional application requirement for Salaried Employees
 Must be at least one (1) year tenure with the company
 Additional application requirement for Self-Employed
 Must be a sole proprietor or majority part-owner of a company operating for at least two (2) years.
 Additional application requirement for Professionals
 Must be in private practice for at least one (1) year

2) Auto Loan

Brand New Car and Used Car Financing Available

Apply for a BDO Auto Loan to help finance your brand new or pre-owned car, with flexible payment options to
suit your lifestyle.

Refinancing, Multi-purpose vehicle loan also available.

Flexible Payment Terms

Minimum down payment of 20% (for brand new) or 30% (for pre-owned), or you may opt to increase your
initial cash out to have a lighter monthly amortization that you can afford.

Fast Loan processing and Low Rates

 Check our competitive rates and get loan approval within 24 hours.

All in Financing also available

You may opt to choose “all-in” inclusive of the following:

Chattel Mortgage Fees

1st year Car Insurance Premium

3-yr LTO registration

Application Requirement

Step 1: Qualifications:

At least 21 years old but not exceeding 65 years old at the end of loan term

Filipino citizen or foreigners residing in the Philippines for at least 2 years

Minimum gross family income of P50,000/month

Stable source of income from employment or business:

If locally employed, at least 2 years with current company

If employed abroad, 2 years consecutive contract for skilled workers or 3 years consecutive contract for
household workers

If self-employed, at least 2 consecutive profitable years of operation.

Step 2 PREPARE THE DOCUMENTS

Basic Documents:

Filled out and signed application form

Identification Document:

Clear copy of one (1) valid ID matching your application details (e.g Passport, Driver’s License, SSS, PRC,
OWWA ID, OFW ID< Seaman’s Book)

For Foreigners, Alien Certificate of Registration with Work Permit

Income documents:

If Locally Employed If Employed Abroad If Self-Employed

 Proof of Remittance for the last 3

 Latest Income Tax Return, or BIR
Form 2316, or latest payslip months
Photocopy of Audited Financial
Statements for the last 2 years,
 Latest Crew Contract (for Seafarers)
 Certificate of Employment with with latest ITR
Salary
 Certificate of Employment with
 Bank Statements of Photocopy
 Additional for Foreigners: current Salary, or Employment Contract*
of Passbook for the last 3
employment contract months
* Consularized if no proof of
remittance is submitted
 Certificate of Business
Registration

 Proof of other income (if any)

3) Home Loan

Various Home Loan Options

Apply for BDO Home Loan to help finance your various housing needs. Purchase or build your new home,
renovate your existing home for your growing family needs or if you want another property for retirement.

Low Interest Rates

Enjoy low interest rates with options for longer fixing period to help you manage your monthly payments.

Flexible Loan Terms

Maximize your loan up to 80% of the appraised value of your property. You can also make your loan payments
more affordable with terms of up to 20 years.

Available Payment Options

Choose from the following payment options:

60-day Grace Period

First payment to start sixty (60) days after the release of your loan, subject to applicable interest.

Interest Only for the first six (6) months

Principal and interest payments to start right after.

Fast Processing Time*

Get a quick loan approval within five (5) days upon submission of complete application documents.
** 5 working days for Metro Manila and 10 working days for provincial areas

All-In Financing
Take advantage of additional loan to cover for Home Loan-related expenses such as mortgage registration fee,
insurance premiums, taxes and the like.

Reward Points via BDO rewards

Your Home Loan account lets you earn BDO Rewards points which can be redeemed at any SM Department
Store for items of your choice.

Convenient Application
With more than 880 branches nationwide, you are sure to find a BDO branch waiting to serve you wherever
you are. Fill-out a BDO Home Loan application form and submit it to any BDO branch or simply apply online.
Our BDO Home Loan Account Officer will contact you immediately.

Fixing Period Interest Rate*

1 year 5.50% p.a.

2 years 6.50% p.a.

3 years 6.50% p.a.

 4 years 6.88% p.a.

5 years 6.88% p.a.

*Subject to change without prior
notice.

Annual interest rate repricing for

existing Home Loan borrowers is
currently at 7.00% p.a. fixed for 1 year.

4) SME Loan

With BDO SME Loan, you can immediately respond to prospects and manage challenges in your business.

Whether you want to expand your business or purchase additional inventory, BDO SME Loan offers you
financing options with your business needs in mind. We provide loan facilities that can be used to help you
manage your cash flow more efficiently or acquire property and equipment for higher productivity.

Term Loan is a secured fixed-term loan facility that is ideal for acquiring property and equipment for your
business.

SME Ready Check is a secured revolving credit line that you can use for your working capital requirements.

Flexible and Affordable Payment Terms

Borrow up to P20 Million, depending on the appraised value of your collateral. Have the flexibility to pay your
loan in 1 year or up to 10 years by choosing the payment option that matches your cash flow.

Easy To Avail

Avail of a BDO SME Loan now by simply using your real estate property (residential, mixed-use or commercial)
as collateral. Enjoy competitive rates, as well as expert loan advice from our dedicated Account Officers and
guaranteed accessibility and convenience when you apply in any of the more than 880 BDO branches
nationwide.

The interest rates for new SME Loan applications are as follows:

Fixing Period Interest Rate*

1 year 7.00%

2 years 7.00%

3 years 7.00%

4 years 8.50%

5 years 8.50%
*Subject to change without prior notice.

Annual interest rate repricing for

existing SME Loan borrowers is
currently at 8.00% p.a. fixed for 1 year.
Application Requirement
• At least 21 years old but not exceeding 65 years old at the end of the

loan term

• With stable source of income from business and/or employment

○ If Employed, at least 2 years of continuous employment (may be

waived if rank is at least Manager level)

○ If Professional (doctor, lawyer, etc.), at least 3 years in practice

of profession

• Business is in profitable operation for at least 2 consecutive years, with

minimum annual gross sales of P1 Million

• Business is within a BDO serviceable area

Basic Documents

• Filled-out and signed application form

• Clear copy of one (1) valid ID matching application details, e.g.

(Passpport, Driver's License, SSS)

• Marriage Contract (if applicable)

• Income Document

Self-employed / Sole
Employed Individual Partnership Corporation
Proprietor

If locally employed:
- Latest Income Tax Return
or BIR Form 2316 or latest
payslip
Photocopy of Audited
Financial Statements for
the last 2 years with latest
ITR
Photocopy of Audited
Photocopy of Audited
Financial Statements for
Financial Statements for the
the last 2 years with latest
last 2 years with latest ITR
ITR

- Certificate of
Employment (COE) with
Salary
Bank Statements or Bank Statements or Bank Statements or
Photocopy of Passbook for Photocopy of Passbook Photocopy of Passbook for
the last 3 months for the last 3 months the last 3 months
 Articles of Partnership
Certificate of Business
AND Certificate of
Registration with the DTI
Registration issued by the
SEC
Any of the following:
If employed abroad:
- Certificate of Registration
- Proof of remittance for
issued by the SEC
the last three (3) months
- Latest amended Articles of
- Latest Crew Contract (for
Incorporation and By-Laws
seafarers)
- List of Elected Officers
- Certificate of Business Background /
Employment with Salary or Company Profile - Board Resolution
Employment Contract
(consularized if no proof of - Secretary's Certificate
income is submitted) Proof of other income, if
any

If income is from rental of

property/ies:

- Lease contract

- Photocopy of TCT/CCT

• Collateral Documents

○ Photocopy of TCT / CCT

○ Photocopy of Tax Declaration

○ Appraisal Fee

○ If Construction Loan

◘ Building / Floor Plan of proposed improvement

◘ Bill of Materials

◘ Specifications of proposed finishes

○ If Refinancing / Loan Take out

◘ Statement of Account from current bank and official receipts

for the last three (3) months

GROUP 4: INVESTMENT OF THE BANK ALLIED AND NON-ALLIED UNDERTAKINGS

(ASSET SIDE OF THE BANK - COMMERCIAL)

Coquia, John Kenneth C.

De Guzman, Roald Franz R.
Ramos, Sunshine M.
 GROUP 5 : TRADING SECURITIES

Besa, John Patrick S.

Clemente, John Carlo C.
Sera, Ivy Vanessa C.

Trading Securities

Trading securities are acquired principally for the purpose of generating a profit from short- term
fluctuations in price or dealer’s margin.

In other words, trading securities are debt and equity securities that are purchased with the intent of
selling them in the “near term” or very soon. These securities are generally purchased and sold in the
exchange market to generate short- term gains or profits. Trading securities are normally classified as
current assets.

Trading securities is a category of securities that includes both debt and equity securities, and which an
entity intends to sell in the short term for a profit that it expects to generate from increases in the
price of the securities. This is the most common classification used for investments in securities.

Trading is usually done through an organized stock exchange, which acts as the intermediary between
a buyer and seller, though it is also possible to directly engage in purchase and sale transactions with
counterparties.

Trading securities are recorded in the balance sheet of the investor at their fair value as of the balance
sheet date. This type of marketable security is always positioned in the balance sheet as a current
asset. If there is a change in the fair value of such an asset from period to period, this change is
recognized in the income statement as a gain or loss.

Example

a. A stock broker that holds an “inventory” of securities for sale to its customers classifies them as trading
securities.
b. A bank that holds securities for active and frequent buying and selling in order to generate profits or
short- term differences in price also classifies them as trading securities.

What is fair value?

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable
and willing parties in an arm’s length transaction. The fair value of securities may be obtained from the
following:

a. Quotations in active public securities market

b. Ratings by independent rating agencies
c. Well established models that use data inputs derived in public markets

Quoted Price

Most often, the fair value of securities in the quoted price in the securities market, for example, the Philippine
Stock Exchange. Thus, the fair value is synonymous with market value of the securities in the stock market.

It also refers to the most recent price at which an investment (or any other type of asset) has traded which
changes constantly throughout the day as events occur that affect the financial markets and the perceived
value of various investments.

If the quoted price pertains to a share of stock or equity security, it means pesos per share. For instance, if the
investment in 10,000 shares of XYZ Company costing P800,000 is quoted at 90, the market value thereof is
P900,000, computed by multiplying 10,000 shares by P90 per share.
If the quoted price pertains to a bond or debt security, it means percent of the face value of the bond. For
instance, if the investment in 2,000,000 face value bond of XYZ Company costing P1,700,000 is quoted at 90,
the market value thereof is P1,800,000, computed by multiplying P2,000,000 shares by 90%

At the end of every trading day, the Philippine Stock Exchange publishes the volume and value of the
securities traded with an indication of the following quoted prices:

a. “Open”- the first price at which the security is traded during the day
b. “Close”- the last price at which the security is traded during the day
c. “Low” – the lowest price at which the security is traded during the day
d. “High” - the highest price at which the security is traded during the day

For securities listed or traded in the stock exchange, the “close” price is usually used for valuation purposes.

For securities not listed in the stock exchange, the “over the counter” price may be used for determining fair
value. “Over the counter” means broker to broker transaction.

Why it matters?

Quoted prices are necessary to inform investors about the prices of securities. The information contained in a
quoted price is sometimes limited; for example, it may not disclose which market makers are bidding for or
offering the security, whether there are limit orders on the security, or the size of potential trades at a
particular price. In other words, quoted prices do not give the viewer access to the "order book" showing who
has an interest in a security and at what price. But quoted prices do give traders and investors a basic idea of
how a security is doing.

UNREALIZED GAINS OR LOSSES – TRADING SECURITIES

ILLUSTRATION – TRADING SECURITIES

ANOTHER ILLUSTRATION – TRADING SECURITIES

 GROUP 6: FIXED ASSETS OF THE BANK

Canete, Junie B.
Esplago, Maria Fea Rosalie M.
Sanchez, Jaymark R.

Property, Plant and Equipment

“Property, Plant and Equipment are tangible assets that are held by an enterprise for use in production or
supply of goods or services, for rental to others, or for administrative purposes, are expected to be used
during more than one period.”

Characteristics

a. The PPE are tangible assets, meaning with physical substance.

b. They are used in business, meaning used in production or supply of goods or services, or for rental purposes
and for administrative purposes.

c. They are expected to be used over a period of more than one year.

The term “PPE” is commonly used by manufacturing enterprises. For merchandising and services
enterprises, the old term “fixed assets” may be more appropriate.

Examples of PPE

A. Property not subjected to depreciation

- such as land used as plant site.

B. Property subject to depreciation

- such as building, machinery, equipment, furniture, fixtures, patterns, molds, and dies, tools, leasehold
improvement, book plates and breeding animals.
C. Property subject to depletion

- such as timber, oil and mining lands, and leases may be included in property, plant and equipment or shown
separately as one line item.

Measurement of PPE

a. Cost model – are carried at cost less in any accumulated depreciation and any accumulated impairment loss

b. Revaluation model – are carried at revalued amount, being the fair value at the date of revaluation less any
subsequent accumulated depreciation and subsequent accumulated impairment loss.

Elements of Cost

a. Purchase price

b. Directly attributable cost

c. Initial estimate of the cost of dismantling and removing the item and restoring the site on which it is
located.

Acquisition of Property

1. Cash basis – the cost of an item of PPE is cash price equivalent at the recognition date.

2. An account subject to cash discount – the cost of the asset is equal to the invoice price minus the discount,
regardless of whether the discount is taken or not. And consider as reduction of cost and not as an income.

3. Installment basis – when payment for an item of PPE deferred beyond normal credit terms, its cost is the
cash price equivalent.
4. Issuance of capital stock or bonds payable – property acquired in exchange for shares or other securities in
the enterprise should be recorded at its fair value of the securities issued which is more clearly evident.

5. Exchange - the cost of an item of PPE acquired in exchange for nonmonetary asset is measured at fair value,
unless the exchange translation lacks commercial substance.

Trade In – a property is acquired by exchanging another property as part payment and the balance
payable in cash or any other form of payment in accordance with agreed terms. Involves a non-dealer
acquiring the asset from a dealer and it also involves with a significant amount of cash
6. Donation – contributions, including stocks of an enterprise, received from shareholders should be recorded
at the fair value of the items received, with the credit going to additional paid in capital or donated capital if
significant.

7. Government grant – assistance by government in the form of transfers of resources to an enterprise in

return for future compliance with certain conditions relating to the operating activities of the enterprise. And
sometimes this called as subsidies, subventions or premiums.

8. Construction – the cost of self-constructed asset is determined using the principles as for an
acquired asset.

Borrowing Cost

ASC SFAS No. 25 provides that borrowing cost includes the following:

1. Interest on short-term and long-term borrowing.

2. Amortization of discount or premium related to borrowing.
3. Amortization of ancillary cost incurred in connection with the arrangement of borrowing.
4. Finance charge with respect to financing lease.
5. Exchange difference arising from foreign currency borrowing to the extent that it is regarded as an
adjustment to interest cost.

Qualifying Asset - it is an asset that necessarily takes a substantial period of time to get ready for its intended
use or sale.

Examples of Qualifying Asset

a. Inventories that require a substantial period of time to bring them to a salable condition.
b. Manufacturing plants
c. Power generation facilities
d. Investment properties

Non-qualifying assets – are other investments and those inventories that are routine manufactured or
otherwise produced in large quantities on repetitive basis over a short period of time.

 Assets financed by “specific borrowing”

- If the funds are borrowed specifically for the purpose of acquiring a qualifying asset, the amount of
capitalizable borrowing cost is the actual borrowing cost incurred during the period less any
investment income from the temporary investment of those borrowings.
 Assets financed by “general borrowing”
- If the funds are borrowed generally and used for acquiring a qualifying asset, the amount of
capitalizable borrowing cost is equal to the average carrying amount of the asset during the period
multiplied by a capitalization rate.
 Assets financed both by specific and general borrowing
 Specific borrowing for asset used for general purposes.

LAND ACCOUNT

Balance sheet classification

The classification of land in the balance sheet will depend on the nature and purpose of the land.

a. Land used as a plant site should be treated as property, plant and equipment.
b. Land held for a currently undetermined use is treated as an investment property.
c. Land is classified as owner-occupied property and not an investment property.
d. Land held for long-term capital appreciation is also treated as an investment property.
 e. Land held for current sale by a real estate developer as in the case of subdivided lots is treated as
current asset as a part of inventory.

Land improvements

The treatment of land improvements will depend on whether the improvements are subject to
depreciation or not.

a. If land improvements are additions to cost not subject to depreciation, they are charged to the land
account.
b. If land improvements are depreciable, they are charged to a special account “land improvements”.

Special assessments
Special assessments are taxes paid by the landowner as a contribution to the cost of public improvements.

Real property taxes

Real property taxes should be treated as outright expense

BUILDING ACCOUNT

Cost chargeable to building when purchased

The following expenditures are normally charged to the building account when building is acquired by
purchase:

a. Purchase price
b. Legal fees and other expenses incurred in connection with the purchase
c. Unpaid taxes up to date of acquisition
d. Interest, liens and other encumbrances on the building assumed by the buyer
e. Payments to tenants to induce them to vacate the building
f. Any renovating or remodeling costs incurred to put a building purchased in a condition suitable for its
intended use such as lightning installations, partitions and repairs

Cost of building when constructed

The following expenditures are normally charged to the building when acquired by means of
construction.

a. Materials used, labor employed and overhead incurred during the construction
b. Building permit or license
c. Architect fee
d. Superintendent fee
e. Cost of excavation
f. Cost of temporary buildings used as construction offices and tools or materials used
g. Expenditures incurred during the construction period such as an interest on construction loans and
insurance
h. Expenditures for services equipment and fixtures made a permanent part of the structure

Building fixtures

Expenditures for shelves, cabinets and partitions may be charged to the building or furniture and
fixtures depending upon the nature of expenditures.

a. Immovable – expenditures that are attached to the building in such a manner that the removal thereof
may destroy the building, they are charged to the building account.
b. Movable – these expenditures are charged to furniture and fixtures and depreciated over their useful
life.

Tools

Tools may be classified as:

a. Machine tools – are those used in connection with the operation of the machine
b. Hand tools – are those not used in operating the machine
 There are three different methods that are used to account if there is a situation arises in the case of
small hand tools or machine tools:

a. Inventory method
b. Replacement method
c. Retirement method

Equipment

It includes:

a. Delivery equipment
b. Store and office equipment
c. Furniture and fixtures

Capital Expenditure and Revenue Expenditure

One of the nagging problems in accounting is whether expenditures on existing property, plant and
equipment should be capitalized or expensed. Such expenditures may be classified as capitalexpenditure and
revenueexpenditure.

Materiality

The capitalization decision may be based simply on the size or amount of the expenditure.

Subsequent Cost

The following expenditures are incurred during ownership of existing property, plant and equipment:

a. Additions – are modifications or alterations which increase the physical size or capacity of the asset.
b. Improvements or betterments – are modifications or alternations which increase the service life or the
capacity of the asset.
c. Replacements – it also involves substitution but the new asset is not better than the old asset when
acquired.

Replacements can be classified into three:

 Replacement of the old asset by a new one
 Replacement of major parts
 Replacement of minor parts
d. Repairs – are those expenditures used to restore assets to good operating condition upon their
breakdown or replacement of broken parts.

Repairs may be classified as:

• Extraordinary repairs - are material replacement of parts, involving large sums and will normally
extend the useful life of the asset. Such expenditures are usually capitalized.
• Ordinary repairs - are minor replacement of parts, involving small sums and are frequently
encountered. These are normally charged to expense when incurred.

e. Rearrangement cost - is the relocation or reinstallation of an asset which proves to be less efficient in its
original location. This is also known as "moving cost", "installation cost" and "relocation cost"

Derecognition
-means that the cost of the property, plant and equipment together with the related accumulated
depreciation should be removed from the accounts.
Disposal of Property
Property, plant and equipment may be disposed of or removed from service for the following reasons:

a. Retirement occurs when an asset wears out from long use and is discarded or sold as junk
b. Destruction usually results when an asset is rendered useless because of flood, fire or other casualty
c. Exchange is commonly involved when an asset is replaced by a more efficient one
d. Sale occurs when an asset is disposed of prior to normal retirement date
Fully Depreciated Property
A property is said to be fully depreciated when the book value is equal to zero, or the book value is equal
to the residual value.

Idle or Abandoned Property

If significant in amount, facilities which have been idle for an extended period or any property which has
been abandoned but not physically retired, or facilities still owned but no longer adopted for use in business
should not be included under property, plant and equipment but classified as "other noncurrent assets".

Optional Disclosures
Enterprises are encouraged to disclose the following information which may prove relevant to the needs
of financial statement users:

a. The carrying amount of temporarily idle property, plant and equipment.

b. The gross carrying amount of any fully depreciated property, plant and equipment still in use.
c. The carrying amount of property, plant and equipment retired from active use and held for disposal
d. When the cost model is used, the fair value of property, plant and equipment when this is materially
different from the carrying amount.

.
 GROUP 7 : TYPES OF DEPOSITS AND ACCOUNTS

Baliola, Jomari E.
Banquillo, Raffy B.
Conanan, Ivan Laurehns D.

TYPES OF DEPOSITS ACCOUNT OFFERED IN BPI

1. Savings Account

Our Savings account products provide you utmost convenience in safe keeping, managing and growing
your funds. With our Savings products, saving and monitoring finances has never been so easy.

 Advance Savings
BPI Advance Savings account, an account that allows you to enjoy the interest of your deposit ahead of
time. *Note: Available in BPI branches only.
 Easy Saver
Easy Saver for a worry-free and easy savings. It has no maintaining balance with a minimal fee for
withdrawal transactions that will encourage you to save more. Now, saving for your future is easy.
 ExpressTeller
juggling your day-to-day finances is wonderfully simplified with an Express Teller Savings account --
your key to 24-hour superior electronic banking convenience.
 Save-Up
Save automatically to get what you want. With Save-Up, it's easy to regularly set aside money from
your ATM account to your Save-Up account every month.
 Jumpstart
Jumpstart Savings account is specially designed for the youth, ages 10 to 17 years old. It’s a tool to
form the habit of saving at an early age.
 Maxi-Saver

 Pamana Savings Account with FREE Life Insurance

"Ang savings natin, for the family. Sa Pamana Savings Account, earn interest on your savings at may
FREE Life Insurance ka pa worth 3x ng account balance mo."
 PamanaPadala
A specially designed savings account for Overseas Filipino Remitters like you. Maaaringsa account naito
i-remit angpinaghirapangsahodupang mas ma-manage moang remittance mosa 'Pinas.
 Passbook Savings
If you favor the recordkeeping ease of a passbook, then, Passbook Savings is the sensible way to safe
keep your money. Earn interest on your funds and monitor your account transactions the simple way.
 Foreign Currency*Let your US Dollars, Yen, Euros, Pounds, Francs and other currencies grow with us.
Whichever currency you choose, enjoy maximum convenience in monitoring your account.

2. CHECKING/CURRENT ACCOUNT

 EXPRESS TELLERChecking account with an ATM card for flexibility in account management through BPI
24/7 channels.

 Ka-Negosyo Affordable and interest-earning, specially designed for entrepreneurs. The affordable,
interest-bearing checking account designed to cater to the needs of entrepreneurs.

 Maxi-One Checking with Statement Simplify financial account management with Maxi-One – the
superior all-in-one account that combines the features of savings and checking.
  Business Checking Accounts - A practical way to monitor business transactions conveniently via a
checkbook and monthly statement of account.Keep track of business transactions conveniently with
Business Checking - the basic checking account for any client's business. With simple features like
check-writing and a monthly statement of account, it provides a practical solution in managing any
business efficiently.

3. TIME DEPOSITS
 Peso Auto Renew Time Deposits - The Peso Auto Renew Time Deposit allows placements to be
renewed automatically for a fixed yield higher than a regular savings account.
 Peso Express Time Deposits - Earn on parked funds through a short-term peso time deposit of less
than 30 days. (Available to Corporate clients.)
 Foreign Currency Time Deposits - Available in US Dollar, Euro, Japanese Yen, Australian Dollar,
Canadian Dollar, Swiss Franc, British Pound, Chinese Yuan and Hongkong Dollar through the Foreign
Currency Time Deposit product to grow the net worth of their funds.
 Plan Ahead Time Deposits - A five-year time deposit with a fixed interest rate allowing protection from
volatile market rates. Upon completion of term, the interest earnings becomes tax-free!

Types of Deposits Account offered in Metro Bank

1. SAVINGS DEPOSITS

Passbook Savings Account

Need to have something physical to hold on to while your money grows in your account? Then a Passbook
savings account is the right product for you.

A Passbook Savings Account is an interest-bearing deposit account which you keep track of through a personal
passbook. You can deposit funds at any Metrobank branch by accomplishing the appropriate deposit slip and
presenting your passbook, slip, and cash or check at the service counter.

Metrobank Debit/ATM Savings Account

Can’t stop by your bank branch but need to be able to access your funds from anywhere 24/7? The Metrobank
Debit/ATM Account comes with an ATM card that allows you to conduct several transactions from a
Metrobank automated teller machine.

MetroDollar Savings Account

Save your dollars in a Metrodollar Savings Account and get the benefit of earning interest in dollars too!

Foreign Currency Savings Account (FXCY SA)

Keep your hard-earned foreign currencies safe and earn interest in the same currency. Watch your money
grow in the following currencies:

Fun Savers Club

It’s never too early to teach your kids the value of saving for the future. Metrobank's Fun Savers Club shows
your kids how to save in simple terms that excite young financial minds. Exclusively for kids and teens under
18, Fun Savers Club is a special savings account that is all about promoting good money sense among kids
today.

2. CHECKING ACCOUNTS

Regular Checking Account

A checking account is a safe, convenient, and worry-free way to deposit funds, settle your bills or loan
installment payments. It also lets you keep better track of your payments through a monthly statement
delivered at your doorstep.

Account One
The ultimate in interest-bearing checking accounts, Account One is a hassle-free, all-in-one product. It comes
with a passbook and an ATM card that lets you access over 1,700 automated teller machines and over 7,400
ATMs within the Bancnet, Expressnet , and Megalink networks.
MetroChecking Extra
A MetroChecking Extra is the best value for money checking account because it earns interest just like a
regular savings account.

3. Time Deposits

MetroDollar Time Deposit

Do you have more dollars than you need? Or do you receive dollars from relatives abroad? Dollar time
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Foreign Currency Time Deposit

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We give you the freedom to choose from several foreign currencies when opening a time deposit account, and
give you a higher yield on your deposit.

Types of Deposits Account offered in BDO

1. Savings Account
 Passbook Savings – Enjoy the security of a passbook and earn fixed interest on your savings.
 ATM Savings –Enjoy the convenience of withdrawing cash anytime through BDO's wide network of
ATMs
 Optimum Savings – Get higher interest rates as you build up your deposit balance. You may withdraw
from your account, free of charge up to 3 times a month.
 Juniors Savers –BDO Junior Savers is the best way to teach your child how to save Open an account
and get a Junior Savers ID Card for free! With an initial deposit of Php2,000.00, kids 7-12 years old may
opt for an ATM Debit card which also serves as their Junior Savers ID Card.

 Prime Savers – Enjoy a savings account that gives you priority in servicing your transactions and special
forex rates. Available to individuals who are at least 60 years old.
 Direct Deposit – Receive your pension through your Direct Deposit Peso Savings Account.
 BDO KabayanAsenso Program

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 Third Currency Savings Account - The Third Currency Savings Account is available in Euro, Japanese
Yen, Great Britain Pound, Canadian Dollar, Australian Dollar, Hong Kong Dollar, Singapore Dollar and
Chinese Yuan

2. Checking Account
 Peso Checking Account – Secure your payments/disbursements via cheque and also enjoy the
convenience of an ATM Debit card.
 Smart Checking Account – Earn interest while benefitting from the security of a checking account plus
the convenience of an ATM Debit card.
 Electronic Statement of Account –Experience the convenience of Online Banking

Introducing the Electronic Statement of Account (eSOA), a safe and secure access to your Checking
Account Statements through Online Banking, wherever you go.
 GROUPS 8 and 12: CASE STUDY

Araza, Princess Camille R.

Castillo, Ellyza Aira G.
Concepcion, Jonathan Mari D.
Ngayan, Angeline C.
Pasahol, Jorel Aaron M.
Saway, Rod Ric R.

CASE STUDY: LEHMAN BROTHERS’ SCANDAL

INTRODUCTION

Lehman Brothers, Inc. operates as a investment bank that serves institutional, corporate, government, and high-

net-worth individual clients. Its business includes capital raising for clients through securities underwriting and

direct placements; corporate finance and strategic advisory services; private equity investments; securities sales

and trading; research; and the trading of foreign exchange and derivative products, and certain commodities.

The company operates in three divisions: Investment Banking, Capital Markets, and Client Services. The

Investment Banking division provides advice to corporate, institutional, and government clients throughout the

world on mergers, acquisitions, and other financial matters. This Division also raises capital for clients by

underwriting public and private offerings of debt and equity securities. The Capital Markets division includes

the company’s institutional sales, trading, research, and financing activities in equity and fixed income, and

cash and derivatives products. This division deals with equity and fixed income products, including U.S.,

European, and Asian equities; government and agency securities; money market products; corporate high grade;

high yield and emerging market securities; mortgage- and asset-backed securities; municipal securities; bank

loans; foreign exchange; and derivatives products. The Client Services division includes private client and

private equity businesses. The company was incorporated in 1965 and is based in New York. Lehman Brothers

Inc. is a subsidiary of Lehman Brothers Holdings Inc. Lehman Brothers, Inc. is in liquidation.

Point of View

This case shall be evaluated in the point of view of a student.

Time Context

On September 15, 2008, Lehman Brothers’ filed for bankruptcy with over $600 billion in debt.
I. Statement of the Problem

All their funds were allotted for investments. They lack of financial management skills and
preparedness for unexpected crisis.

II. Statement of the Objective

The case aims to determine the cause of bankruptcy, how to prevent future problems with the
three L’s that killed Lehman and to maintain a balanced cash inflow and outflow.

III. Areas of Consideration

STRENGTHS: WEAKNESSES:

- large volume of business - litigation issues

- diversified revenues
- exposure to subprime
- technical enterprise

OPPORTUNITIES: THREATS:

-acquisitions -dip in residential mortgage business

-buoyant asset management industry
-volatility in financial markets
-growing opportunities in investment
-competition
banking
-foreign exchange indices

V. Alternative Courses of Action

Alternative Course of Action #1:

Secured enough capital funds for liquidity.

Alternative Course of Action #2

Company should’ve taken opportunity to trim its massive mortgage portfolio when the opportunity is
available.

Alternative Course of Action #3:

Lehman Brothers’ should’ve used better financial strategies to recognize the possible risks or hire better
analyst to have higher chances to predict unexpected events outside the company.
VI. Analysis of the Alternative Courses of Action

ACA ADVANTAGES DISADVANTAGES

1 The company have the ability to cover up The company’s profit will
losses in case such things happen. declined because cash
provided for investments
are lessen.

2 The risk of loss will reduce. The company’s profit will

be at risk.

3 The company will be prepared in case of The company will allot

negative events that may happen inside and more budget for the
outside of the company. salaries and prevention of
the possible risks.

Decision Matrix

Criteria ACA 1 ACA 2 ACA 3

1. Profitability 2 3 1

2. Liquidity 3 2 1

3. Efficiency 2 1 3

TOTAL 7 6 5

VII. Conclusion

Therefore, we conclude, the best course of action is to secure enough capital funds for liquidity

VIII. Plan of Action

1. A portion of a capital should be allotted to the reserved funds.

2. The inflow and outflow cash of the company should be maintained balanced.
3. The possible risks should be considered at all times.
 GROUPS 9 : OTHER SOURCES OF LIABILITIES THAT THE
BANK MAY ALSO INCUR

Rapanan, Wesley A.
Rianzares, Gabriella Ariane A.
Salo, Maria Katherine J.

Bank liabilities are the debts incurred by a bank, what a bank owes. While a bank is bound to have
traditional business liabilities and debts (for electricity, office supplies, employee wages), the bulk of banks
financial liabilities are financial-legal claims or IOUs issued by the bank.

A bank uses liabilities to buy assets, which earns its income. By using liabilities, such as deposits and
borrowings, to finance assets such as loans to individuals or businesses, or to buy interest earning securities,
the owners of the bank can leverage their bank capital to earn much more than would otherwise be possible
using only the bank’s capital.

Most banks also have a few other liabilities. Specifically banks might borrow from other sources other than
typical household and business customer that provide deposits.

1. CAPITAL AND RESERVES

Together they constitute owned funds of banks. Capital represents paid up capital for example the amount
of share capital contributed by owners (shareholders) banks. Reserves are retained earnings or
undistributed profits of banks accumulated over their working lives Banks borrow money, usually from
other banks in what is called the federal funds market.

• Federal funds loans (loans from other banks)

Federal funds loans are unsecured and are for very short periods, typically overnight. They are usually
made through brokers who specialize in such transactions, or they are arranged directly between the
banks themselves. The interest rate on a federal funds loan is called the federal funds rate. The interest
rate of these types of borrowings relies on the controlling price in the money market. But borrowings from
other banks are only possible when the economic conditions are normal. In abnormal times no bank can
afford to grant to others.

• Federal Reserve loans (loans from the Federal Reserve System)

In the United States, federal funds are overnight borrowings between banks and other entities to
maintain their bank reserves at the Federal Reserve Banks to meet their reserve requirements and to clear
financial transactions.

Banks with excess reserves, which are usually smaller banks located in smaller communities, lend to
the larger banks in metropolitan areas, which are usually deficient in reserves.

The interbank loans in the federal funds market are unsecured, so banks only lend to other banks that
they trust. Part of the reason for the 2007-2009 Credit Crisis is that banks did not know which other banks
were holding risky mortgage-backed securities that were beginning to default in large numbers, so they
stopped lending to each other, forcing banks to restrict their lending to the public, which caused the
supply of money to decline and the economy to contract.
 • Trust Fund

A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or
organization. A grantor establishes a trust fund to provide financial security to an individual, most often a
child or grandchild, or organizations, such as a charity or other nonprofit organization.

• Mutual Fund
A mutual fund is an investment vehicle that is made up of a pool of funds collected from many
investors for the purpose of investing in securities such as stocks, bonds, money market instruments and
similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to
produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and
maintained to match the investment objectives stated in its prospectus.

2. BORROWINGS

Banks as a whole borrow from the RBI, the IDBI, the NABARD, and from the non-bank financial
institutions (the LIC, the UTI, the GIC and its subsidiaries, and the ICICI) that are permitted to lend by
the RBI in the inter-bank call money market. Individual banks borrow from each other as well through
the call money market and otherwise.

• Non-depository Institutions Banks also borrow from non-depository institutions, such as

insurance companies, pension funds, securities firms, government sponsored enterprises, and finance
companies, but most of these loans are collateralized in the form of a repurchase agreement (aka
repo), where the banks gives the lenders securities, usually treasuries, as collateral for a short-term
loan. Most repos are overnight loans that are paid back with interest the very next day.

Non-depository institutions form an important part of the economy. These non-depository

institutions are sometimes referred to as the shadow banking system, because they resemble banks as
financial intermediaries, but they cannot legally accept deposits

. • Borrowing from the central bank Banks also build liabilities on themselves by borrowing from
the central bank of the country. They borrow to satisfy their liquidity requirements for short-term and
by discounting bills from the central bank. But these types of borrowings are comparatively costlier
than borrowing from other sources.

. • Loans are the major asset for most banks. They earn more interest than banks
have to pay on deposits, and, thus, are a major source of revenue for a bank. Often
banks will sell the loans, such as mortgages, credit and auto loan receivables, to be
securitized into asset-backed securities which can be sold to investors. This allows banks
to make more loans while also earning origination fees and/or servicing fees on the
securitized loans.

Loans include the following major types:

 business loans, usually called commercial and industrial (C&I) loans

  real estate loans
o residential mortgages
o home equity loans
o commercial mortgages
 consumer loans
o credit cards
o auto loans
 interbank loans

3. DEPOSITS

At the present level of financial development in India, banks are the premier financial institution. Deposit
mobilization by them remains the most important (though not the only) form of mobilization of savings of the
public. Therefore, to the extent the promotion and mobilization of savings is a necessary prerequisite for
stepping up the rate of economic growth, mobilization by banks in real terms must be given its due weight.

Liabilities are either the deposits of customers or money that banks borrow from other sources to use to
fund assets that earn revenue. Deposits are like debt in that it is money that the banks owe to the customer
but they differ from debt in that the addition or withdrawal of money is at the discretion of the depositor
rather than dictated by contract.

•Demand Deposit

A demand deposit consists of funds held in an account from which deposited funds can be withdrawn
at any time without any advance notice to the depository institution. Demand deposits can be "demanded" by
an account holder at any time. Many checking and savings accounts today are demand deposits and are
accessible by the account holder through a variety of banking options, including teller, ATM and online
banking. In contrast, a term deposit is a type of account which cannot be accessed for a predetermined period
(typically the loan's term).

•Savings Account

A savings account is a deposit account held at a bank or other financial institution that provides
principal security and a modest interest rate. Depending on the specific type of savings account, the account
holder may not be able to write checks from the account (without incurring extra fees or expenses) and the
account is likely to have a limited number of free transfers/transactions. Savings account funds are considered
one of the most liquid investments outside of demand accounts and cash. In contrast to savings
accounts, checking accounts allow you to write checks and use electronic debit to access your funds inside the
account. Savings accounts are generally for money that you don't intend to use for daily expenses. To open a
savings account, simply go down to your local bank with proper identification and ask to open an account.

•Checking Account

A checking account is a transactional deposit account held at a financial institution that allows
for withdrawals and deposits. Money held in a checking account is very liquid, and can be withdrawn using
checks, automated cash machines and electronic debits, among other methods. A checking account differs
from other bank accounts in that it often allows for numerous withdrawals and unlimited deposits,
whereas savings accounts sometimes limit both. Checking accounts can include business accounts, student
accounts and joint accounts along with many other types of accounts.

4. OTHER LIABILITIES
They are miscellaneous items of various descriptions such as bills payable, etc. Then there are
participation certificates, a new form of issuing banks’ liability about which we study in the next sub-section.

•Accounts Payable - AP

Accounts payable (AP) is an accounting entry that represents an entity's obligation to pay off a short-
term debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current
liabilities.

Accounts payable are often referred to as "payables".

Another common usage of AP refers to a business department or division that is responsible for making
payments owed by the company to suppliers and other creditors.

•Accrued Expenses Payable

Accrued expenses payable are those obligations that a business has incurred, for which no invoices have
yet been received from suppliers. An accrued expense payable is recorded with a reversing journal entry,
which (as the name implies) automatically reverses in the following reporting period. By recording the expense
in this manner, a business accelerates expense recognition into the current period. These payables are
considered to be short-term liabilities, and appear under that classification in the balance sheet.

For example, a janitorial firm may provide cleaning services to a company, but does not issue a monthly
invoice to the company before the company controller closes the books for the month; accordingly, the
controller accrues the expense in anticipation of receiving the invoice at a later date. As another example,
goods are received during the month and recorded in a company's receiving log, but no supplier invoice
arrives by the end of the month; in this case, the controller estimates the amount of the invoice based on the
quantity received, and records an accrued expense.

Accrued expenses payable may not be recorded if they are too small to have a material impact on the
financial results of a business. Avoiding immaterial accrued expenses payable can significantly reduce the
amount of work required to close the books. This is accomplished by having a formal company policy that sets
a monetary threshold below which expenses are not to be accrued.

Accrued expenses payable are not recognized in a business that operates under the cash basis of
accounting, since these entities only recognize expenses when cash is paid to suppliers. The cash basis of
accounting tends to delay the recognition of expenses into later reporting periods.
 GROUP 10: SOURCES OF CAPITAL IN A BANK

Acejo,John Paul C.
Desuyo, Jerlyn Mae
Galvez, Mark Allen B.

Brief Introduction about Bank:

A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits
into lending activities, either directly or through capital markets. A bank connects customers with capital
deficits to customers with capital surpluses.

Source of Bank Funds:

A bank is a business firm. Its main aim is to earn profit. In order to achieve this objective it provides services to
the customers. It offers a variety of interest bearing obligations to the public. These obligations are the
sources of funds for the bank and are shown on the liability side of the balance sheet of a commercial bank.
The main sources which supply funds to a bank are as follows:

A. Bank’s Own funds.

B. Borrowed funds.

1. Bank own funds.

Bank’s own funds are mainly of three type:

A. Paid up capital.
B. Reserve fund.
C. Portion of undistributed profit.

Bank’s own funds.

1. Paid up capital

Bank’s own paid capital. The amount with which a banking company is registered is called nominal or
authorized capital. It is the maximum amount of capital which is mentioned in the capital clause of the
memorandum of association of the company. Capital is further divided into (i) paid up capital and (ii)
subscribed capital.

2. Reserve fund

Reserve is another source of fund which is maintained by all commercial banks. At the time of declaring
dividend, a certain portion of the profit is transferred to the reserve fund. This reserve belongs to the
shareholders and at the time of liquidation, the shareholders are entitled to these reserves along with the
capital.

The main purpose of setting aside part of profit is to meet unforeseen expenses of the bank. The Banking
Companies Ordinance has made it obligatory (binding) for every banking company.

3. Profit

Profit is another source to a bank for the purpose of business. Profits signify the credit balance of the profit
and loss account which has not been distributed. The accumulated profits over the years increase the
working capital of the bank and strengthens its financial position.

Borrowed funds.

The borrowed capital is a major and an important source of fund for any banking business. It mainly comes
from deposits which are accepted on varying terms in different accounts.

Bank’s borrowing is mostly in the form of deposits. Bank collect three kind of deposits from its customers

1. Current or demand deposits

2. Saving deposits
3. Fixed or time deposits.

The large the deposits of bank, the large will be its (use) fund for employment and so higher are its profit.

1. Borrowing from central bank

The commercial banks in times of emergency borrow loans from the central bank of the country. The
central bank extends help as and when financial help is required by the commercial banks.

2. Other sources

Bank also raise funds by leasing and buying holding securities.

A. Buy/Hold Securities
Banks also frequently use their capital to acquire investment securities. Regulators in all countries
require that banks hold back some percentage of capital as reserves. Debt securities issued by the
national, state, and local governments are frequently treated as safe as cash, or close to it, by
regulators. Therefore, banks will often hold these instruments as a way of earning some income on
their reserves.
B. Lease
A lease is a method of obtaining the use of assets for the business without using debt or equity financ-
ing. It is a legal agreement between two parties that specifies the terms and conditions for the rental
use of a tangible resource such as a building and equipment. Lease payments are often due annually.
The agreement is usually between the company and a leasing or financing organization and not directly
between the company and the organization providing the assets. When the lease ends, the asset is
returned to the owner, the lease is renewed, or the asset is purchased.

3. Deposits

The largest source by far of funds for banks is deposits; money that account holders entrust to the bank for
safekeeping and use in future transactions, as well as modest amounts of interest. Generally referred to as
"core deposits," these are typically the checking and savings accounts that so many people currently have.
There are three type of bank deposits

A. Current deposits
B. Saving deposits
C. Time deposits

Due to the spread of literacy, banking habits and growth in the volume of business operations, there is a
marked increase in deposit money with bank.

1. Current deposits

In deposit terminology, the term current deposits refers to a deposit to a bank account or financial
institution without a specified maturity date. These type of Current Deposit account generally only earn
demand deposit interest. Interest is very low for current account.

2. Saving deposits

A deposit account held at a bank or other financial institution that provides principal security and a modest
interest rate. Depending on the specific type of savings account, the account holder may not be able to
write check from the account (without incurring extra fees or expenses) and the account is likely to have a
limited number of free transfers/transactions. Saving account fund are considered one of the most liquid
investment outside of demand account and cash. In contrast to saving accounts, checking account allows
you to write checks and use electronic debit to access your funds inside the account. Savings account are
generally for money that you don’t intend to use for daily expenses.
3. Time deposits

A time deposit also known as a term deposit, is a money deposit at a banking institution that cannot be
withdraw for a certain “term” or period of time (unless a penalty is paid). When the term is over it can be
withdraw or it can be held for another term. Generally speaking, the longer the term the better the yield
on the money. A certificate of deposit is a time deposit product.

4. Fees On Deposits and Loans

Customers may revile bank service fees, but they are a large part of how many banks make money. Banks
can charge fees for simply allowing a customer to have an account open, typically if, or when, the account
balance is below a certain break-point, as well as fees for using ATMs or overdrawing accounts. Banks will
also earn income from fees for services like cashier's checks and safe deposit boxes.

5. Payment Services

Larger banks can also earn non-interest income from payment processing services. Banks will help
merchants, frequently small or mid-sized businesses, set up payment systems that will allow them to
accept debit and/or credit cards, handle checks electronically, convert currency and automate much of
the back-office work, to ensure faster payment and less hassle.
 Group 11: PURPOSE OF THE CAPITAL OF THE BANK

Caparas, Czarielle Claryze C.

Omandam, Arjay
Villasor, Hazel Mae B.

Generally speaking, bank capital consists of own sources of asset financing that bring us straight to the
essence of capital, if we think of it as of something allowing a bank to support its liabilities by its assets. Hence,
the volume of capital is an equivalent of the net assets worth, representing the margin by which assets
outweigh liabilities. Assets equalling capital is what would be left for bank owners to split up after all
depositors and creditors have been satisfied. On a bank’s books, own funds (shareholders’ equity, own capital)
break down into the following items:

 share capital;
 capital funds;
 profit-generated funds (with the legal reserve fund as a typical example (legal reserve fund - it is
required in many legislations and it must be paid as a percentage of share capital));
 profits/losses from previous periods (retained earnings; unsettled losses are reported as a negative
item);
 current year’s results (profit; loss reported as a negative item);
 loan loss reserves.

Capital is supposed to protect a bank from all sorts of uninsured and unsecured risks apt to turn into
losses. This is where we get to the two principal functions of capital – to absorb losses and to build and
maintain confidence in a bank.

1. THE LOSS-ABSORBING FUNCTION

Capital is needed to allow a bank to cover any losses with its own funds. A bank can keep its liabilities
fully covered by assets as long as its aggregate losses do not deplete its capital. Any losses sustained reduce a
bank’s capital, set off against its equity items (share capital, capital funds, profit-generated funds, retained
earnings), depending on how its general assembly decides. Operating losses (a business result which, as far as
income and expenses are concerned, does not include the generation and disposal of provisions and reserves)
is not an all too common phenomenon in banks. Banks usually take good care to set their interest margins and
other spreads between the income derived from and the cost of borrowed funds to cover their ordinary
expenses. That is why operating losses are unlikely to wear off capital on a long-term basis. This can be said
especially of banks with long and sound track record who, owing to their past efficiency, have managed to
generate a sufficient amount of own funds to easily cope with any operating losses. In a new bank without
much success history, however, operating losses may end up driving capital below the minimum level set by
law. Banks run a considerably greater risk of losses resulting from borrower defaults, rendering some of their
assets partly or entirely irrecoverable.

Figure 1 depicts the process of how these risks are covered and how to derive real capital from the
shareholders’ equity reported in the balance sheet.
 Risks are perceived as real frozen financial flows, in contrast to the classic definition of potential bank
exposure (The total amount of credit extended to a borrower by a lender. The magnitude of
credit exposure indicates the extent to which the lender is exposed to the risk of loss in the event of the
borrower's default). For better clarity, operating profits and reserves are shown as separate items in the
figure. The bank has assessed its risky assets at 7 units (it is good to think in the billions). In other words, that
is the amount of assets it expects may not perform. To address the risk, it sets up provisions (made for
classified assets) and reserves. Specific reserves (put aside for standard assets with caution) and General
reserves (for a cluster of loans where it is not possible to assess the risk associated with each specific loan, but
the bank can assign risks to certain loan categories). The expenses accounting for provisions of 4 units and
reserves of 1 unit have consumed the entire operating profit of 2 units and led to a negative business result.
As a result, the bank suffered a total loss of 3 units, scaling down its own capital to 5 units. The total of
assets/liabilities has dropped to 96 units after risky assets covered by provisions were taken away from the
balance sheet.

The figure presents a situation where a bank falls short of covering all of its identified risks, which leads
to an unsecured loss. In this case, that loss amounts to 2 units, with 5 units worth of provisions and reserves
standing up against 7 units of risky assets. After risk deduction, the real asset value comes in at 93 units, as
opposed to 90 units worth of liabilities. As a result, the bank’s capital, measured in terms of net asset worth,
works out to 3 units. We would arrive at the same result by taking the unsecured loss off the own capital,
exclusive reserves, reported in the balance sheet. This more realistic measure of capital tells us how high a loss
the bank can take and still have sufficient real assets to meet all its liabilities. The value of real capital as
calculated above may be increased by the bank’s surplus or excess reserves (reserves of cash more than the
required amounts), if any. That is what happens when existing reserves outstrip the risks they are supposed to
cover. This is mostly the case with surpluses in banks’ general reserves, which can occur for several reasons.

The volume of a bank’s real capital is further inflated by latent reserves which occur when the real
value of certain assets surpasses their book value. This can be the result of applicable accounting rules, e.g. if
purchased securities are valued at their purchasing price while their fair market value is higher. Latent
reserves add to the bank’s ability to cover its liabilities by assets, and as such need to be counted into capital.
The general path to real capital is this: take the own capital shown in the balance sheet, exclusive of reserves,
add any latent reserves, subtract any unsecured loss, and add any excess reserves. The real capital formula
would look like this:

real capital = share capital + capital funds + profit-generated funds + retained earnings (– unsettled loss)
from previous periods + profit (– loss) of the current year + latent reserves + (– unsecured loss or + excess
reserves)

In our discussion, we have only considered a bank’s risks related to balance sheet assets. Needless to
say, we also need to account for its exposure in off-balance sheet operations as one of the factors determining
the overall need for provisions and reserves.

2. THE CONFIDENCE FUNCTION

Subordinated debt can have a confidence boosting effect on depositors and bank creditors, as it gives
them protection from losses. Any losses uncovered by own funds primarily impact subordinated creditors.
Thus, by including subordinated debt in capital, we can tell what losses a bank can take without any effect on
regular creditors.

ASSETS LIABILITIES

Fixed assets Capital

(performing, readily sellable) debt

Adequate capital power, brings out the fact that deposits and other liabilities are balanced by assets which
either yield a financial flow in the ordinary course of banking business (loans, debt securities) or can be sold
should the need arise (securities in general). It is a crucial requirement that a bank’s capital cover its fixed
investments (fixed assets, participating interests in subsidiaries) used in its business operation, which usually
produce no financial flow. The table below illustrates the situation.

A bank with adequate capital backing and credibility will not find it hard to get its missing liquidity on
the interbank market. Other banks will not feel uncomfortable lending to it, as they will know it has the
capacity to settle its liabilities with its assets. In banks with an adequate capital base, however there is no
reason to fear a mass-scale depositor exodus. The reason is that the problems which might trigger a bank raid
in the first place are not making headlines. It is more likely to expect an alternating pattern of liquidity lows
and highs, with the latter occurring at times of asset financial inflow outstripping outflow, where the bank is
likely to lend its excess liquidity.

Banks must not count on the interbank market to solve all their problems. They need to match their
assets and liability maturities, something that allows them to sail through stressful market situations.

A bank known for having capital problems is bound to see its interbank market confidence go sooner
or later. Depending on how grave its predicament is, other banks are likely to cut back or shut down their
credit lines. A bank locked out of the interbank market has no way of refinancing its liquidity needs, which
puts it under some heavy pressure. In attempt to replenish its liquidity it will approach depositors trying to
attract them with higher interest rates. A low capital level gives away missing financial flows caused by losses
stemming from bad loans or inefficient bank operation. The bank is forced to use deposits as a permanent
substitute. In the process, their interest costs put an additional strain on its business results and erode its
capital.

High deposit rates often attract customers to such a degree that new deposits, apart from covering
deposit calls, end up inflating the bank’s total assets/liabilities. The bank appears to be doing just fine until the
news of its problems, which earlier prompted the better informed banking sector to drive it out of the
interbank market, becomes common knowledge.

Bank confidence can be further supported by the fact that the subordinated creditors, despite being
aware of their subordinated ranking, are not afraid of losing their money which implies a positive view of the
bank’s situation.

Given its usually long maturities, subordinated debt has a financing quality to it as well, providing funds
suited to finance fixed assets. Due to the controversy about its recognition as a part of capital base, there are
certain restrictions applied in its inclusion. Bank capital has a financing and restrictive function as well.
However, in light of the key importance of the functions discussed above, these functions are somewhat
secondary.

3. THE FINANCING FUNCTION

As deposits are unfit for the purpose, it is up to capital to provide funds to finance fixed investments
(fixed assets and interests in subsidiaries). This particular function is apparent when a bank starts up, when
money raised from subscribing shareholders is used to buy buildings, land and equipment. It is desirable to
have permanent capital coverage for fixed assets. That means any additional investments in fixed assets
should coincide with a capital rise. During a bank’s life, it generates new capital from its profits.

Profits not distributed to shareholders are allocated to other components of shareholders’ equity,
resulting in a permanent increase. Capital growth is a source of additional funds used to finance new assets. It
can buy new fixed assets, loans or other transactions.

Think of the finance function as a rainbow displaying various colors, all of which interrelate to form a
seamlessly efficient arc of colored light. In the business environment, various sub-functions diligently
contribute to make financial management a success. The finance work stream feeds such sub-processes as
accounting, tax compliance, treasury and financial reporting. It is good for a bank to place some of its capital in
productive assets, as any income earned on self-financed assets is free from the cost of borrowed funds. If a
bank happens to need more new capital than it can produce itself, its options are either to issue new shares or
take a subordinated debt, both an outside source of capital.

4. THE RESTRICTIVE FUNCTION

 A restrictive covenant is a promise a company makes to not exceed certain financial ratios or not
conduct certain activities, usually in return for a loan or bond issue. Capital is a widely used reference for
limits on various types of assets and banking transactions. The objective is to prevent banks from taking too
many chances. The capital adequacy ratio, as the main limit, measures capital against risk-weigh assets.

Depending on their respective relative risk, the value of assets is multiplied by weights ranging from 0
to 20, 50 and 100%. We use the net book value here, reflecting any adjustments, reserves and provisions. As a
result, the total of assets is adjusted for any devaluation caused by loan defaults, fixed asset depreciation and
market price declines, as the amount of capital has already fallen due to expenses incurred in providing for
identified risks.

That exposes capital to potential risks, which can lead to future losses if a bank fails to recover its
assets. The minimum required ratio of capital to risk-weighed assets is 8 percent. Under the applicable capital
adequacy decree, capital is adjusted for uncovered losses and excess reserves, less specific deductible items.
To a limited extent, subordinated debt is also included in capital. The decree also reflects the risks contained in
off-balance sheet liabilities. In the restrictive function context, it is the key importance of capital and the
precise determination of its amount in capital adequacy calculations that make it a good base for limitations
on credit exposure and unsecured foreign exchange positions in banks.

The most important credit exposure limits restrict a bank’s net credit exposure (adjusted for
recognisable types of security) against a single customer or a group of related customers at 25% of the
reporting bank’s capital, or at 125% if against a bank based in Slovakia or an OECD country. This should ensure
an appropriate loan portfolio diversification.

The decree on unsecured foreign exchange positions seeks to limit the risks caused by exchange rate
fluctuations in transactions involving foreign currencies, capping unsecured foreign exchange positions (the
absolute difference between foreign exchange assets and liabilities) in EUR at 15% of a bank’s capital, or 10% if
in any other currency.

The total unsecured foreign exchange position (the sum of unsecured foreign exchange positions in
individual currencies) must not exceed 25% of a bank’s capital. The decree dealing with liquidity rules
incorporates the already discussed principle that assets, which are usually not paid in banking activities, need
to be covered by capital.

It requires that the ratio of the sum of fixed investments (fixed assets, interests in subsidiaries and
other equity securities held over a long period) and illiquid assets (less readily marketable equity securities and
nonperforming assets) to a bank’s own funds and reserves not exceed 1. Owing to its importance, capital has
become a central point in the world of banking. In leading world banks, its share in total assets/liabilities
moves between 2.5 and 8 %. This seemingly low level is generally considered sufficient for a sound banking
operation. Able to operate at the lower end of the range are large banks with a quality and well-diversified
asset portfolio. Capital adequacy deserves constant attention. Asset growth needs to respect the amount of
capital. Eventually, any problems a bank may be facing will show on its capital. In commercial banking, capital
is the king.

HOW IT WORKS (EXAMPLE):

Let’s assume Company XYZ wants to borrow $10 million from Bank ABC. The loan agreement contains
restrictive covenants that limit Company XYZ to $0.10 per share in dividends per year and prevent it from
issuing additional debt without Bank ABC’s consent.

Restrictive covenants can exist in employment agreements and

even merger or acquisition agreements, but they are most common in lending agreements
and bond indentures. Covenants, in general, can be financial or operational in nature.

The lending agreement or indenture in which the covenant appears will also provide detailed formulas
to be used to calculate the ratios and limits on restrictive covenants. It is important to note that in many cases
these formulas do not conform to generally accepted accounting principals (GAAP). For example, the
restrictive covenant may include leases in a debt-limit calculation, or it may consider capital leases as an
expense. As a result, it is very important that borrowers scrutinize covenants before borrowing.

WHY IT MATTERS:

Lenders attach restrictive covenants to bond issues and loans as a way to force the borrower to
operate in a financially prudent manner that most ensures it will repay the debt. Issuers, on the other hand,
usually negotiate the most flexible covenants they can so they have the freedom to make decisions and take
risks that might ultimately benefit the lenders and the shareholders. Thus, the more restrictive covenants
a bond issue has, the lower the interest rate on those bonds tends to be.

Violating a restrictive covenant can trigger a technical default. This means that although the issuer is
making interest and principal payments on time, it is not operating within the agreed-upon guidelines and is
thus increasing the risk of nonpayment in the eyes of the lender or bondholders. Often borrowers have a
certain amount of time to remedy (or "cure") the technical default (for example, the borrower must lower
its debt-to-equity ratio within 30 days), but technical defaults often lower the borrower’s credit
rating and stock price.
 GROUP 13: SOURCES OF INCOME OF A BANK
Cruz, Janvrian A.
del Mundo, Camille C.
Villas, John Jake V.

Introduction:

A bank is a business organization engaged in the business of borrowing and lending money. A bank can earn
income only if it borrows at a lower rate and lends at a higher rate. The difference between the two rates will
represent the costs incurred by the bank and the profit.

As mentioned before, banks basically make money by lending money at rates higher than the cost of the
money they lend. More specifically, banks collect interest on loans and interest payments from the debt
securities they own, and pay interest on deposits, CDs, and short-term borrowings. The difference is known as
the "spread," or the net interest income, and when that net interest income is divided by the bank's earning
assets; it is known as the net interest margin.

These are the various sources of a bank’s profit:

Deposits

The largest source by far of funds for banks is deposits; money that account holders entrust to the bank for
safekeeping and use in future transactions, as well as modest amounts of interest. Generally referred to as
"core deposits," these are typically the checking and savings accounts that so many people currently have.

Wholesale Deposits

If a bank cannot attract a sufficient level of core deposits, that bank can turn to wholesale sources of funds.
In many respects these wholesale funds are much like interbank CDs. There is nothing necessarily wrong with
wholesale funds, but investors should consider what it says about a bank when it relies on this funding source.

Share Equity

While deposits are the primary source of loanable funds for almost every bank, shareholder equity is an
important part of a bank's capital. Several important regulatory ratios are based upon the amount of
shareholder capital a bank has and shareholder capital is, in many cases, the only capital that a bank knows
will not disappear.

Debt

Banks will also raise capital through debt issuance. Banks most often use debt to smooth out the ups and
downs in their funding needs, and will call upon sources like repurchase agreements or the Federal Home
Loan Bank system, to access debt funding on a short term basis.

Interest on Loans

The main function of a commercial bank is to borrow money for the purpose of lending at a higher rate of
interest. Bank grants various types of loans to the industrialists and traders. The yields from loans constitute
the major portion of the income of a bank.

Interest on Investments

Banks also invest an important portion of their resources in government and other first class industrial
securities. The interest and dividend received from time to time on these investments is a source of income
for the banks. Bank also earn some income when the market prices of these securities rise.
Discounts

Commercial banks invest a part of their funds in bills of exchange by discounting them. Banks discount both
foreign and inland bills of exchange, or in other words, they purchase the bills at discount and receive the full
amount at the date of maturity.

Commission, Brokerage, etc.

Banks perform numerous services to their customers and charge commission, etc., for such services. Banks
collect cheques, rents, dividends, etc., accepts bills of exchange, issue drafts and letters of credit and collect
pensions and salaries on behalf of their customers.
 GROUP 14: EXPENSES OF A BANK

Baetiong, Vincent C.
Carpio, Justin Marc M.
Lozada, Neil Kenneth T.

Fees and Commission Expenses

A commission is a fee that a business pays to a salesperson in exchange for his or her services in either facilitating,
supervising, or completing a sale. The commission may be based on a flat fee arrangement, or (more commonly) as a
percentage of the revenue generated. Less-common commission structures are based on the gross margin or net
income generated by a sale; these structures are typically less used, since they are more difficult to calculate. A
commission may be earned by an employee or an outside salesperson or entity.

Administrative Expenses

Rent

The cost incurred by a business to utilize property. Business can take rent expenses as a tax deduction, provided
that the property is used for business purposes, the cost is reasonable, and no equity or ownership in the property is
accumulated from the rental payments.

Power, Light and Water (Utility Expense)

Utilities expense is the cost consumed in a reporting period related to the following types of expenditures:
Electricity. Heat (gas) Sewer. Water

Repairs and Maintenance

The costs incurred to bring an asset back to an earlier condition or to keep the asset operating at its present
condition (as opposed to improving the asset).

For example, if a company truck is damaged, the cost to repair the damage is immediately debited to repairs and
maintenance expense

Insurance Expenses

Insurance expense is the cost of insurancethat has been incurred, has expired, or has been used up during the
current accounting period for the nonmanufacturing functions of a business.

Traveling Expenses

Travel expenses can generally be deducted by employees as non-reimbursed travel expenses that are incurred
while traveling away from home specifically for business purposes, such as for a conference or meeting.

Advertising and Publicity

The activity or profession of producing advertisements for commercial products or services.

Documentary Stamps Used

Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident there to and is recorded as expense
of the bank.

Supplies Expense

Supplies expense refers to the cost of consumables used during a reporting period. Depending on the type of
business, this can be one of the larger corporate expenses. There are two types of supplies that may be charged to
expense

Litigation/Assets Acquired Expenses (Acquisition Cost)

An acquisition cost, also referred to as the cost of acquisition, is the cost that a company recognizes on its books
for property or equipment after adjusting for discounts, incentives, closing costs and other necessary expenditures but
before sales taxes. Additionally, an acquisition cost can describe the costs accrued by a business in relation to the efforts
involved in acquiring a new customer.

Depreciation/Amortization

Depreciation is the process by which a company allocates an asset's cost over the duration of its useful life. Each
time a company prepares its financial statements, it records a depreciation expense to allocate a portion of the cost
of the buildings, machines or equipment it has purchased to the current fiscal year.

Impairment Loss

Impairment loss is the decrease in an asset's net carrying value that exceeds the future undisclosed cash flow it
should generate. Net carrying value is an asset's acquisition cost minus depreciation.Impairment occurs when a
company sells or abandons an asset that is no longer beneficial.

Provisions

Provision for Credit Losses on Loans and Receivables and Other Financial Assets

Bad Debts Written Off

A write-off is a deduction in the value of earnings by the amount of an expense or loss. When businesses file their
income tax return, they are able to write offexpenses incurred to run the business and subtract them from their
revenue to determine their taxable income.

Recovery on Charged-off Assets

A charge-off is an expense on a company's income statement that is either related to a debt that is deemed
uncollectible by the reporting firm and is subsequently written off of the balance sheet, or a probable one-time
extraordinary expense incurred by a company that negatively affects earnings and results in a write-down of some
of the firm's assets. The write-down arises due to impairments of assets.

Share in Profit/(Loss) of Unconsolidated Subsidaries

A profit and loss statement (P&L) is a financial statement that summarizes the revenues, costs and expenses
incurred during a specific period of time, usually a fiscal quarter or year. These records provide information about a
company's ability – or lack thereof – to generate profit by increasing revenue, reducing costs, or both. The P&L
statement is also referred to as "statement of profit and loss", "income statement," "statement of operations,"
"statement of financial results," and "income and expense statement."
 GROUP 15: PROVISIONS AND CONTINGENT LIABILITY

Doblada, Jaimelene A.
Lacpao, Gerald P.
Zulueta, Lerizza Joy C.

Provision and Contingent Liability

Definition of Provision

A provision is an existing liability of uncertain timing or uncertain amount.

The essence of a provision is that there is uncertainty about the timing or amount of the future expenditures.

It is this uncertainty that distinguishes provision from other liabilities.

The liabilities definitely exist at the end of the reporting period but the amount is indefinite or the date when
the obligation is due is also indefinite, and in some cases, the payee cannot be identified or determined.

Actually, a provision may be the equivalent of an estimated liability or a loss contingency that is accrued
because it is both probable and measurable.

Provision and other liabilities

Paragraph 11 of PAS 37 states that a provision can be distinguished from other liabilities in the sense that
there is uncertainty about the timing or amount of the future expenditure required for settlement.

In contrast, there is certainty about the timing or amount of other liabilities, such as trade payables and
accruals.

Trade payables and accruals are liabilities to pay for goods or services that have been received or supplied and
have been invoiced or formally agreed with the supplier.

Recognition of provision

PAS 37, paragraph 14 provides that provision shall be recognized as a liability in the financial statements under
the following conditions:
1. The entity has a present obligation, legal or constructive, as a result of past event.
2. It is probable that an outflow of resources embodying economic benefits would be required to settle
the obligation.
3. The amount of the obligation can be measured reliably.

Present obligation

The present obligation may be legal or constructive. It is fairly clear what a legal obligation is.

A legal obligation is an obligation arising from a contract, legislation or other operation of law.

A constructive obligation is an obligation that is derived from an entity’s actions where:

1. The entity has indicated to other parties that it will accept certain responsibilities by reason of an
established pattern of past practice, published policy, or a sufficiently specific current statement.
2. And as a result, the entity has created a valid expectation on the part of other parties that it will
discharge those responsibilities.
Otherwise defined, a constructive obligation exists when the entity from an established pattern of practice or
stated policy has created a valid expectation that it will accept certain responsibilities

Contingent Liability

PAS 37, paragraph 10, defines a contingent liability in two ways:

A contingent liability is a possible obligation that arises from past event and whose existence will be confirmed
only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control
of the entity.
A contingent liability is a present obligation that arises from past event but is not recognized because it is not
probable that an outflow of resources embodying economic benefits will be required to settle the obligation
or the amount of the obligation cannot be measured reliably.

Contingent liability and provision

The second definition states that a contingent liability is a present obligation.

However, the present obligation is either probable or measurable but not both to be considered a contingent
liability.
The present obligation is probable and the amount can be measured reliably, the obligation is not a
contingent liability but shall recognized as a provision

Treatment of contingent liability

A contingent liability shall not be recognized in the financial statements but shall be disclosed only. The
required disclosures are:
a. Brief description of the nature of the contingent liability.
b. An estimate of its financial effects.
c. An indication of uncertainties that exist.
d. Possibility of any reimbursement.

If a contingent liability is remote, no disclosure is necessary

When the existence of the obligation is uncertain as of the end of the reporting period, or when the
amount of the obligation cannot be reliably estimated, even if it is probable to result in an outflow of
resources embodying economic benefits, no recognition of obligation is required in the financial statements.
The item is one of a contingent liability.

Contingent liabilities must be assessed continually to determine whether an outflow of resources embodying
economic benefits has become probable. If it becomes probable that an outflow of future economic benefits
will be required for an item previously dealt with as a contingent liability, a provision is recognized in the
financial statements of the period in which the change in probability occurs, except in the extremely rare
circumstances where no reliable estimate can be made.

Example:
During 2014, ABC Company gives a guarantee of certain borrowings of DEF Company, whose financial
condition at that time is sound. During 2015, the financial condition of DEF Company deteriorates and at June
30, 2015, DEF Company files for protection from its creditors.
At December 31, 2014, the obligating event is the giving of the guarantee that gives rise to a legal
obligation. However, no outflow of benefits is probable on this date; thus no provision is recognized. The
guarantee is disclosed as a contingent liability, unless the probability of any outflow is regarded as remote.
At December 31, 2015, however, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation. On this date, a provision is recognized for the best estimate
of the obligation.
Similarly provisions should be reviewed at the end of each reporting period and adjusted to reflect the
current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, the provision should be reversed. The reversal is treated as a change
in accounting estimate and will affect the profit or loss of the current period.
Contingent assets

PAS 37, paragraph 10, defines contingent asset as a “possible asset that arises from past events and whose
existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events
not wholly within the control of the entity.”

A contingent asset shall not be recognized because this may result to recognition of income that may never be
realized.

However, when the realization of income is virtually certain, the related asset is no longer contingent asset
and its recognition is appropriate.

A contingent asset is only disclosed when it is probable.

The disclosure includes a brief description of the contingent asset and an estimate of its financial effects.

If a contingent asset is only possible or remote, no disclosure is required.

Events after reporting period

Under PAS 10, paragraph 3, “events after the reporting period” are those events both favorable and
unfavorable that occur between the end of the reporting period and the date when the financial statements
are authorized for issue.

There are two types of events after reporting period namely:

1. Adjusting events after reporting period are those that provide evidence of conditions that exist at the
end of the reporting period.
2. Nonadjusting events after reporting period are those that are indicative of conditions that arise after
the end of the reporting period.

Adjusting events

Examples of adjusting events after the reporting period which require the entity to adjust the financial
statements are:

1. Resolution after the reporting period of a court case because it confirms that the entity had a present
obligation.
2. Bankruptcy of a customer which occurs after the reporting period.
3. Sale of inventory after the reporting period may give evidence about the net realizable value at
reporting date.
4. The determination after the reporting period of the cost of asset purchased or the proceeds from
assets sold before the reporting date.
5. The determination after the reporting period of the profit sharing or bonus payment if the entity has
the present obligation at the reporting date to make such payment.
6. The discovery of fraud or errors that shows that the financial statements were incorrect.

Nonadjusting events

Examples of nonadjusting events after the reporting period which require disclosure ony includes:

1. Business combination after the reporting period.

2. Plan to discontinue an operation.
3. Major purchase and disposal of asset or expropriation of major asset by government.
4. Destruction of a major production plant by a fire after the reporting period.
5. Major ordinary shares transactions and potential ordinary shares transactions after reporting period.
6. Abnormally large changes after the reporting period in asset prices or foreign exchange rates.
7. Entering into significant commitments or contingent liabilities, for example, by issuing guarantees.
8. Commencing major litigation arising solely from events that occurred after the reporting period.

Financial statements authorized for issue

The financial statements are authorized for issue when the board of directors reviews the financial
statements and authorizes them for issue.

In some cases, an entity is required to submit the financial statements to the shareholders for approval after
the financial statements have been issued.
In such cases, the financial statements are authorized for issue on the date of issue by the board of directors
and not the date when the shareholders approve the financial statements.

In other cases, the management of an entity is required to issue the financial statements to a supervisory
board made up solely of nonexecutives for approval.

In such cases, the financial statements are authorized for issue when the management authorizes them for
issue to the supervisory board.

Provision Contingent Liability

Definition A liability of uncertain timing or amount Either

a) a possible obligation that arises from past
events and whose existence will be
confirmed only by the occurrence or non-
occurrence of one or more future events not
wholly within the control of the enterprise;
or

b) a present obligation that arises from past

events but is not recognized because
- it’s not probable that an outflow of
resources embodying economic benefits will
be required to settle the obligation; or
- the amount of the obligation cannot
be measured reliably

Recognition Recognized as a liability on the face of the Not recognized as a liability on the face of the
statement of financial position statement of financial position

Financial Presented separately in the statement of Unless remote, disclosed in the notes to the
Statement financial position under liabilities financial statements
Presentation
 GROUP 16: FINANCIAL ANALYSIS : LIQUIDITY RATIOS
Andrade, Jhun Arthur R.
Fondevilla, Andrea Joyce F.
Nacionales, Joshua P.

LIQUIDITY RATIOS
Liquidity ratios are a class of financial metrics used to determine a company's ability to pay off its
short-terms debts obligations. Generally, the higher the value of the ratio the larger the margin of safety that
the company possesses to cover short-term debts is.Common liquidity ratios include the current ratio, the
quick ratio and the cash ratio.

A company's ability to turn short-term assets into cash to cover debts is of the utmost importance
when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the
liquidity ratios to determine whether a company will be able to continue as a going concern.

CURRENT RATIO
What is the 'Current Ratio'?

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term
obligations. To gauge this ability, the current ratio considers the current total assets of a company (both liquid
and illiquid) relative to that company’s current total liabilities.

The formula for calculating a company’s current ratio, then, is:

Current Ratio = Current Assets / Current Liabilities

The current ratio is called “current” because, unlike some other liquidity ratios, it incorporates all
current assets and liabilities.The current ratio is also known as the working capital ratio.

The current ratio is mainly used to give an idea of the company's ability to pay back its current liabilities
(debt and accounts payable) with its current assets (cash, marketable securities, inventory, and accounts
receivable). As such, current ratio can be used to take a rough measurement of a company’s financial health.
The higher the current ratio, the more capable the company is of paying its obligations, as it has a larger
proportion of asset value relative to the value of its liabilities.

A ratio under 1 indicates that a company’s current liabilities are greater than its current assets and suggests
that the company in question would be unable to pay off its obligations if they came due at that point. While a
current ratio below 1 show that the company is not in good financial health, it does not necessarily mean that
it will go bankrupt. There are many ways for a company to access financing, and this is particularly so if a
company has realistic expectations of future earnings against which it might borrow. For example, if a
company has a reasonable amount of short-term debt but is expecting substantial returns from a project or
other investment not too long after its debts are due, it will likely be able to stave off its debt. All the same, a
current ratio below 1 is usually not a good sign.

On the other hand, a high ratio (over 3) does not necessarily indicate that a company is in a state of
financial well-being either. Depending on how the company’s assets are allocated, a high current ratio may
suggest that that company is not using its current assets efficiently, is not securing financing well or is not
managing its working capital well.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn
its product into cash. Companies that have trouble getting paid on their receivables or have long inventory
turnover can run into liquidity problems because they are unable to alleviate their obligations.
 QUICK RATIO OR ACID-TEST RATIO
What is the 'Quick Ratio or Acid-Test Ratio'?

The quick ratio or acid-test ratio is an indicator of a company’s short-term liquidity. The quick ratio
measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the
ratio excludes inventories from current assets, and is calculated as follows:

Quick ratio = (current assets – (inventories + supplies + prepaid expenses) / current liabilities, or

= (cash and equivalents + marketable securities + accounts receivable) / current liabilities

The quick ratio measures the peso amount of liquid assets available for each peso of current liabilities,
thus, a quick ratio of 1.5 means that the company has P1.50 of liquid assets available to cover each P1 of
current liabilities. The higher the quick ratio is, the better the company's liquidity position.

CASH RATIO
What is the 'Cash Ratio'?

The cash ratio is the ratio of a company's total cash and cash equivalents to its current liabilities. The
metric calculates a company's ability to repay its short-term debt; this information is useful to creditors when
deciding how much debt, if any, they would be willing to extend to the asking party. The cash ratio is generally
a more conservative look at a company's ability to cover its liabilities than many other liquidity ratios because
other assets, including accounts receivable, are left out of the equation.

The cash ratio is most commonly used as a measure of company's liquidity. The metric calculates a
company's ability to pay current liabilities using only cash and cash equivalents on hand. If the company is
forced to pay all current liabilities immediately, this metric shows the company's ability to do so without
having to sell or liquidate other assets.

If a company's cash ratio is equal to 1, the company has exactly the same amount of current liabilities as it
does cash and cash equivalents to pay off those debts.

If a company's cash ratio is less than 1, there are more current liabilities than cash and cash equivalents. In this
situation, there is insufficient cash on hand to pay off short-term debt.

If a company's cash ratio is greater than 1, the company has more cash and cash equivalents than current
liabilities. In this situation, the company has the ability to cover all short-term debt and still have cash
remaining.

The formula of Cash Ratio is:

Cash Ratio = (Cash + Cash Equivalents or Marketable Securities) / Current Liabilities

 Bank of the Philippine Islands

As of December 2015

(In Millions of Peso)

Current Assets

Cash and Other Cash Items P 35 681

Due from Bangko Sentral ng Pilipinas ** 214 960

Due from Other Banks ** 22,238

Financial Assets at Fair Value through Profit or Loss **

Derivative Financial Assets 4 529

Trading Securities 8 084

Loans and Advances, net ** 872 861

Deferred Income Tax Assets, net 6 433

Total Current Assets P 1 164 786

Current Liabilities

Deposit Liabilities P 1 275 699

Derivative Financial Liabilities ** 3 216

Bills Payable 20 941

Due to Bangko Sentral ng Pilipinas ** 431

Manager’s Checks and Demand Drafts Outstanding 8 308

Accrued Taxes, Interest and Other Expenses 5 685

Total Current Liabilities P 1 314 280

CURRENT RATIO

Current ratio = Current Assets / Current Liabilities

= 1 164 786 / 1 314 280

= 0.87

The current ratio is less than 1, so it means that, the current assets are not enough to cover all the current
liabilities.

Note: if the account title has **, it means that the account is not only considered as Current Asset. It
could also be Non-current depending on the time agreement of the bank and the client. But in this case,
we just assume that the accounts are said to be current assets.
Cash and Other Cash Items, Marketable Securities and Accounts Receivable

Cash and Other Cash Items P 35 681

Due from Bangko Sentral ng Pilipinas 214 960

Due from Other Banks 22,238

Financial Assets at Fair Value through Profit or Loss

Derivative Financial Assets 4 529

Trading Securities 8 084

Loans and Advances, net 872 861

Total Cash and Other Cash Items,

Marketable Securities and Accounts Receivable P 1 158 353

QUICK RATIO

Quick Ratio = (cash and equivalents + marketable securities + accounts receivable) /

Current Liabilities

= 1 158 353 / 1 314 280

= 0.88

The result of the quick ratio is less than one, which means that there are more current liabilities than
cash and cash equivalents, marketable securities and accounts receivable. In this situation, there is insufficient
cash on hand to pay off short-term debt.

CASH, OTHER CASH ITEMS AND MARKETABLE SECURITIES

Cash and Other Cash Items P 35 681

Financial Assets at Fair Value through Profit or Loss

Derivative Financial Assets 4 529

Trading Securities 8 084

Total Cash, Other Cash Items and Marketable Securities P 48 294

CASH RATIO

Cash Ratio = (Cash + Cash Equivalents or Marketable Securities) /

Current Liabilities

= 48 294 / 1 314 280

= 0.04

The cash ratio is less than 1, which means that there are more current liabilities than Cash, Other Cash
Items and Marketable Securities. In this situation, there is insufficient cash on hand to pay off short-term debt.
 Metropolitan Bank and Trust Company

As of December 2015

(In Millions of Peso)

Current Assets

Cash and Other Cash Items P 32 536

Due from Bangko Sentral ng Pilipinas ** 214 704

Due from Other Banks ** 36 864

Financial Assets at Fair Value through Profit or Loss ** 48 856

Loans and Receivables ** 887 202

Deferred Tax Assets 8 427

Total Current Assets P 1 228 589

Current Liabilities

Deposit Liabilities P 1 257 970

Bills Payable and Securities Sold Under

Repurchase Agreements 176 791

Derivative Liabilities ** 4 145

Manager’s Checks and Demand Drafts

Outstanding 5 613

Income Taxes Payable 880

Accrued Interest and Other Expenses 8 187

Total Current Liabilities P 1 453 586

CURRENT RATIO

Current ratio = Current Assets / Current Liabilities

= 1 228 589 / 1 453 586

= 0.85

The current ratio is less than 1, so it means that, the current assets are not enough to cover all the current
liabilities.

Note: if the account title has **, it means that the account is not only considered as Current Asset. It
could also be Non-current depending on the time agreement of the bank and the client. But in this case,
we just assume that the accounts are said to be current assets.

Cash and Other Cash Items, Marketable Securities and Accounts Receivable

Cash and Other Cash Items P 32 536

Due from Bangko Sentral ng Pilipinas 214 704

Due from Other Banks 36 864

Financial Assets at Fair Value Through Profit or Loss 48 856

Loans and Receivables 887 202

Total Cash and Other Cash Items,

Marketable Securities and Accounts Receivable P 1 220 162

QUICK RATIO

Quick Ratio = (cash and equivalents + marketable securities + accounts receivable) /

Current Liabilities

= 1 220 162/ 1 453 586

= 0.84

The result of the quick ratio is less than one, which means that there are more current liabilities than
cash and cash equivalents, marketable securities and accounts receivable. In this situation, there is insufficient
cash on hand to pay off short-term debt.

CASH, OTHER CASH ITEMS AND MARKETABLE SECURITIES

Cash and Other Cash Items P 32 536

Financial Assets at Fair Value

Through Profit or Loss 48 856

Total Cash, Other Cash Items and Marketable Securities P 81 392

CASH RATIO

Cash Ratio = (Cash + Cash Equivalents or Marketable Securities) /

Current Liabilities

= 81 392 / 1 453 586

= 0.06

The company's cash ratio is less than 1, there are more current liabilities than cash and cash equivalents. In this
situation, there is insufficient cash on hand to pay off short-term debt.
 BDO UNIBANK, INC.

As of December 31, 2015

(In Millions of Peso)

ASSETS

Current Assets

Cash and Cash items P 45,010

Due from Bangko Sentral ng PIlipinas ** 260,840

Due from Other banks ** 20,942

Financial Assets at Fair Value through profit and loss ** 5,139

Loans and Receivables-Net **

InterBank loans receivables 51,965

Loans and Receivables-Others 1,213,128

Loans and Receivables Arising from RA/CA/PR/SLB 58,372

General Loan Loss Provision 13,379

Total Current Assets P 1,668,775

LIABILITIES

Current Liabilities

Financial Liabilities at Fair Value through Profit or Loss ** P 944

Deposit Liabilities 1,601,798

Bills Payable

Interbank Loans Payable 27,262

Other Deposit Substitutes 565

Others 20,647

Total Current Liabilities P 1,651,216

CURRENT RATIO

Current ratio = Current Assets / Current Liabilities

= 1,668,775/1,651,216

= 1.01

The current ratio is more than 1, so it means that, the current assets would be able to pay off its obligations if
they came due at that point.
Cash and Other Cash Items, Marketable Securities and Accounts Receivable

Cash and Cash items P 45,010

Due from Bangko Sentral ng PIlipinas 260,840

Due from Other banks 20,942

Financial Assets at Fair Value through profit and loss 5,139

Loans and Receivables-Net 1,336,844

Total P 1,668,775

QUICK RATIO

Quick Ratio = (cash and equivalents + marketable securities + accounts receivable) /

Current Liabilities

= 1,668,775 / 1,651,216

= 1.01

The result of the quick ratio is 1.01, there are more cash and cash equivalents, marketable securities and
accounts receivable than current liabilities. It means that the company has P1.091 of liquid assets available to
cover each P1 of current liabilities.

CASH, OTHER CASH ITEMS AND MARKETABLE SECURITIES

Cash and Cash items P 45,010

Financial Assets at Fair Value through profit and loss 5,139

Total P 50,149

CASH RATIO

Cash Ratio = (Cash + Cash Equivalents or Marketable Securities) /

Current Liabilities

= 50,149/ 1,651,216

= 0.03

The company's cash ratio is less than 1, there are more current liabilities than cash and cash equivalents.
In this situation, there is insufficient cash on hand to pay off short-term debt.

Note: if the account title has **, it means that the account is not only considered as Current Asset. It
could also be Non-current depending on the time agreement of the bank and the client. But in this case,
we just assume that the accounts are said to be current assets.
 GROUP 17: FINANCIAL ANALYSIS: SOLVENCY RATIOS
Decena, Michael Benedict T.
Tamondong, Jessica Nicole C.
Romualdo, Febrionne

Solvency is the ability of a company to meet its long-term financial obligations. Solvency is essential to staying
in business because a company that is insolvent may enter bankruptcy.

The following formula is used to track a business’ solvency ratio, which is usually expressed as a
percentage:

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛

𝑆𝑜𝑙𝑣𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝑆ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝐿𝑜𝑛𝑔𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Overall, companies with higher solvency ratios are viewed as more likely to meet their financial
obligations, whereas those with lower scores are seen as posing a greater risk to banks and
creditors. Although a good solvency ratio varies based on the industry in question, a company with a
ratio at or above 20% is generally considered healthy.

The Importance of Calculating Solvency

Periodically checking your business' solvency ratios can help ensure your company’s fiscal health. In

the long run, keeping an eye on your solvency ratio can help prevent the company from going

bankrupt because of rising debt levels. In other words, knowing your ratio should help you determine

when you can and can't handle additional debt. Businesses with excessive debt may struggle to

manage cash flow or deal with rising interest levels. It also reassures creditors and shareholders that

your business can pay its debts. Lenders want to know that your company can pay back the loan

principle as well as the interest that accumulates. A poor solvency ratio may suggest that your

company will be unable to meet its obligations in the long term.

A good solvency ratio varies by industry, so it’s important to compare your numbers with those of your

competitors. Because businesses in some industries are able to survive with solvency ratios that

would be considered unhealthy in others.

Fortunately, most companies can take steps to improve their solvency ratios and boost profitability in

the long term. Along with selling assets to reduce overall debt, a company may opt to reorganize its

business structure, increase owner equity or reinvest money and assets in the business. And of

course, struggling businesses should try to avoid taking on new debts until their solvency ratios

improve. Finally, companies should also strive to improve sales, as this will ultimately boost both

profitability and solvency.

Types of Solvency Ratios

There are different types of solvency ratios that you can use to track different elements of your
finances. Here are some of the most common types of solvency ratios that companies track on a
regular basis:
Solvency Ratio is divided into two categories, Debt Ratios that focus on the balance sheet and
Coverage Ratios which introduce the Income Statement

Debt Ratios:

 Debt-to-assets Ratio
Measures the percentage of total assets financed by debt. Unlike the above formula with debt-to-
asset ratio a higher ratio indicates more financial risk and weaker insolvency

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
𝐷𝑒𝑏𝑡 𝑡𝑜 𝑎𝑠𝑠𝑒𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

 Debt-to-Equity Ratio
The ratio reveals the relative proportions of debt and equity financing that a business employs. It is
closely monitored by lenders and creditors, since it can provide early warning that an organization is
so overwhelmed by debt that it is unable to meet its payment obligations.

𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑏𝑡
𝐷𝑒𝑏𝑡 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

 Debt-to-Capital Ratio

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
𝐷𝑒𝑏𝑡 𝑡𝑜 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 + 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

 Financial Leverage Ratio

Measures the amount of total assets per unit of equity. The higher the ratio the more leveraged is the
company.

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

Coverage Ratios:

 Interest Coverage Ratio

Measures how easily a firm can pay its interest expenses. How many times the firm’s EBIT (Earnings
Before Interest and Tax) covers the interest expense?

𝐸𝐵𝐼𝑇 = 𝑅𝐸𝑉𝐸𝑁𝑈𝐸 − 𝑂𝑃𝐸𝑅𝐴𝑇𝐼𝑁𝐺 𝐸𝑋𝑃𝐸𝑁𝑆𝐸𝑆

𝐸𝐵𝐼𝑇 = 𝑁𝐸𝑇 𝐼𝑁𝐶𝑂𝑀𝐸 + 𝐼𝑁𝑇𝐸𝑅𝐸𝑆𝑇 + 𝑇𝐴𝑋𝐸𝑆

𝐸𝐵𝐼𝑇
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
  Fixed Charge Coverage Ratio
Measures how easily a firm can pay its interest expenses and fixed charges such as leases. A higher
ratio indicates greater ability to service debt from operating earnings and indicates more secure
preferred dividends.

A fixed charge is any type of fixed expense that recurs on a regular basis. Fixed charges can include
insurance, salaries, utilities, vehicle payments, loan payments and mortgage payments. These

𝐸𝐵𝐼𝑇 + 𝐹𝑖𝑥𝑒𝑑 𝐶ℎ𝑎𝑟𝑔𝑒𝑠

𝐹𝑖𝑥𝑒𝑑 𝐶ℎ𝑎𝑟𝑔𝑒 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 + 𝐹𝑖𝑥𝑒𝑑 𝐶ℎ𝑎𝑟𝑔𝑒𝑠
 GROUP 18: FINANCIAL ANALYSIS: PROFITABILITY RATIOS

Adoptante, John Paulo V.

How to calculate Profitability Ratios for Banks

To determine the profitability of banks, simply looking at the earnings per share isn’t quite enough. It’s
also important to know how efficiently a bank is using its assets and equity to generate profits. For this reason,
three key profitability ratios to look at when evaluating a bank stock are:

 Return on Assets
 Return on Equity
 Net interest Margin

Return on Assets

ROA = NET INCOME/TOTAL ASSETS

RETURN ON EQUITY

ROE = NET INCOME/TOTAL EQUITY

NET INTEREST MARGIN

NIM = INTEREST INCOME – INTEREST EXPENSE/TOTAL ASSETS