Balance of Profit
This item includes balance of profit after appropriations. According to the Notes and Instructions for compilation of balance sheet and profit and loss account, issued by the RBI, in case of loss, the balance may be shown as a deduction. Though it is not mentioned whether the loss is to be deducted from the aggregate of ‘reserves’ or from ‘revenue and other reserves’ only, it is obvious on a consideration of legal requirements and sound accounting principles that the loss should be deducted only from revenue reserves.
Further, as prescribed by RBI’s circular no. DBOD.BP.BC.31/21.04.018/ 2006-07 dated September 20, 2006, the banks need to obtain prior approval of the Reserve Bank of India before any appropriation is made from the statutory reserve or any other reserve.
The said circular also requires that:
(i) All expenses including provisions and write offs recognised in a period, whether mandatory or prudential, should be reflected in the Profit and Loss Account for the period as an ‘above the line’ item (i.e., before arriving at the net profit);
(ii) Wherever draw down from reserves takes place with the prior approval of Reserve Bank, it should be effected only “below the line”, (i.e., after arriving at the profit/loss for the period); and
(iii) Suitable disclosures should be made of such draw down of reserves in the ‘Notes on Accounts’ to the Balance Sheet.