What are the Contingent Liabilities
Contingent liability is a potential obligation which may in the future develop into actual liability or may dissolve without necessitating any outlay. The crucial characteristics…
What are the Contingent Liabilities
Which party bears interest-rate risk exposure in a fixed rate loan? in a floating rate loan?
To the extent that risk means future uncertainty, both parties bear risk when interest rates are floating that they do not bear when rates are…
Why would any company purchase a floor
Why would any company purchase a floor, since it keeps its interest payments up when interest rates fall? While borrowers do not purchase floors by…
Companies enter into swaps for reasons of return and/or risk
Either they wish to lower the cost of their financing or better match their financing to the cash flows from their operations, thereby providing some…
Importance of An Accurate Valuation of Inventories
The auditor examines the particular thing to assume himself of its existence. Physical examination requires identification of the item. One must be convinced that he…
How does a collar make a floating rate loan become more like a fixed rate loan?
A collar limits the amount of interest rate movement that can affect a borrower. A collar with a wide band has very little effect, cutting…
Explain Prepayment
Prepayment also known as prepared expenses are those expenses which are incurred or paid during the year under audit but relate to the period subsequent…
Identify three conditions in which term loan financing is particularly appropriate
Three conditions in which a term loan is appropriate are: (1) to finance an asset of intermediate-term life, thus hedging the loan with the cash…
Divisible Profits
Profit may be defined as follows: 1. Generally speaking the profit of the business during a given period is the excess over the expenditure for…
Equal amortization term loan
What are the similarities and differences between: a. An equal payment term loan? An equal payment loan is a loan which is repaid in a…