QA Series No 20 - Financial Statements - Part 05

 

The Banking Tutor

Question Answer Series 2025

S No 20                                                                    09-07-2025

Financial Statements – Part 05 

101. What is full form of FACR and what is it ? 

FACR stands for Fixed Asset Coverage Ratio, is a financial metric that assesses a company's ability to cover its long-term debt with its fixed assets. 

102. What is the formula to calculate FACR? 

FACR = Net Fixed Assets / Total Long-Term Debt 

103. What is full form of LLCR and what it indicates? 

LLCR stands for Loan Life Coverage Ratio (LLCR) is a metric used in project finance to assess a borrower's ability to repay a loan over its entire lifespan. 

104. How to arrive at LLCR? 

The LLCR is calculated by dividing the net present value of the cash flows available for debt service (CFADS) over the remaining loan tenor by the outstanding debt balance. 

105. What is the difference between LLCR and DSCR ? 

LLCR is similar to the Debt Service Coverage Ratio (DSCR), but it is more commonly used in project financing because of its long-term nature.

The DSCR captures a single point in time, whereas the LLCR addresses the entire span of the loan. 

106. What is meant by Marshalling in the context of Balance Sheet ? 

In the context of a balance sheet, marshalling refers to the specific order in which assets and liabilities are arranged to present a clearer picture of a company's financial position. 

107. What is meant by Unqualified Opinion in the context of Balance Sheet? 

An unqualified audit opinion, also known as a clean opinion, is the most favorable type of audit report. It signifies that the auditor believes the company's financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. 

108. What is meant by Qualified Opinion in the context of Balance Sheet? 

A qualified audit opinion is a type of audit opinion where the auditor identifies material misstatements or scope limitations in the financial statements, but these issues are not pervasive to the overall presentation. It essentially means the financial statements are fairly presented, with some exceptions. 

109. What is meant by Adverse Opinion in the context of Balance Sheet? 

An adverse opinion in auditing signifies that the auditor believes the company's financial statements are materially misstated and do not present a true and fair view of the company's financial position. This is the most serious type of audit opinion, indicating significant issues with the financial statements. 

110. What is meant by Disclaimer Opinion in the context of Balance Sheet? 

A disclaimer of opinion in an audit report indicates that the auditor was unable to form an opinion on the fairness of the financial statements due to insufficient appropriate audit evidence. 

111. What is meant by Accelerated Depreciation ? 

Method that records greater Depreciation than Straight-line Depreciation in the early years and less depreciation than straight-line in the later years of an Asset Holding Period. 

112. What is meant by Accumulation in the context of Company’s Finance ? 

In company finance, accumulation generally refers to the process of growing a company's capital base, often through retaining profits rather than distributing them as dividends. Profits that are not paid out as Dividends but are instead added to the company’s capital base. 

113. What is meant by Acquisition the context of Company’s Management ? 

In finance, an acquisition is a transaction where one company purchases another, gaining control over its assets and operations. One company taking over controlling interest in another company. 

114. What is an Affiliated Company ?

An affiliated company is a business that has a less than 50% ownership stake held by another company, or where a third company holds less than 50% ownership in both companies, allowing for influence without direct management control.

115. What is a Condensed Financial Statement? 

Condensed Financial Statement is a Financial Statement for external reporting that presents only the major categories of information. 

116. What is a Going Concern ? 

A going concern is a company that is financially stable and, at the very least, is likely to survive for the next 12 months. 

117.  What is a Gone Concern ? 

A "gone concern" is a business that is either already in liquidation or is very likely to be liquidated in the near future. 

118. What is meant by Leverage in Finance ? 

In finance, leverage refers to using borrowed money (debt) to increase the potential return on an investment or to acquire assets. 

119. What is meant by Markup? 

In business, markup refers to the amount added to the cost of a product or service to determine its selling price. 

120. What is Pay-out Ratio? 

Pay-out Ratio is the Percentage of a firm’s profits that is paid out to shareholders in the form of Dividends. 

121. What is meant by Pre-emptive Right? 

Pre-emptive Right is the Right giving existing stockholders the opportunity to purchase shares of a new Issue before it is offered to others.

122. What are Retained Earnings ? 

Retained Earnings are accumulated undistributed earnings of a company retained for future needs or for future distribution to its owners. 

123. What is a Sale-Leaseback Transaction ? 

Sale-Leaseback Transaction is  sale of property by a seller who simultaneously leases the property back from the purchaser.

124. What is a Sinking Fund? 

Money accumulated on a regular basis in a separate custodial Account that is used to redeem Debt securities or Preferred Stock issues is called Sinking Fund. 

125. What is Sunk Cost and What is Sunk Cost Fallacy/ Give an example.

Sunk costs are those irrevocable costs which have already been occurred and  cannot be retrieved. 

Sunk cost fallacy, also known as Concorde fallacy, refers to the tendency of individuals or businesses to continue investing in a losing proposition simply because they have already invested significant resources (time, money, effort) in it, even when it's no longer a rational decision. 

An example of a sunk cost fallacy is continuing to watch a movie you don't enjoy because you've already paid for the ticket. 

Next Issue  will be shared on 11^th   July 2025.

Sekhar Pariti

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