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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.
Bank's own paid up capital: The amount with which a banking company is registered is called nominal or authorized capital. It is the maximum amount of the capital which is mentioned in the capital clause of the memorandum, of association of the company. Capital is further divided into paid up capital and subscribed capital. The banks in Pakistan raise authorized capital by issuing ordinary shares of rupees 10 each which are fully paid up.
Reserve fund is another source of fund which is maintained by all commercial banks. At that 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.
Bank's own paid up capital: The amount with which a banking company is registered is called nominal or authorized capital. It is the maximum amount of the capital which is mentioned in the capital clause of the memorandum, of association of the company. Capital is further divided into paid up capital and subscribed capital. The banks in Pakistan raise authorized capital by issuing ordinary shares of rupees 10 each which are fully paid up.
Reserve fund is another source of fund which is maintained by all commercial banks. At that 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.
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