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Category Archives: Accounting

  • How to calculate Discount rate/discount factor?

    How to calculate Discount rate/discount factor?

    Discount rates, also known as discount factors, refer to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows. Another meaning of the term “discount rate” is the rate used by pension plans and insurance companies for discounting their liabilities.…

  • What is the difference between IFRS and US-GAAP?

    What is the difference between IFRS and US-GAAP?

    The companies across the world, while reporting the financial statement are abide by the specific accounting regulations of their country of business. For example, the companies who have business activities in India have to adapt Indian Accounting Standard (abbreviated as Ind-AS) while reporting the financial statement, similarly, Generally Accepted…

  • What is Trial balance?

    What is Trial balance?

    Trial balance is a list of debits and credits items (assets/liabilities/income/expenses) extracted from closing balance in each account of general ledger. This type of report is generated in a double entry account format before the finalization of balance sheet on a certain date, usually at the end of an…

  • What is capital budgeting?

    What is capital budgeting?

    Capital budgeting (also known as investment appraisal) is the process of project appraisal to decide whether the big investment in such a long term project is worth pursuing. The long term investment may be needed to a company for technology up gradations, purchase of new machinery, expansion programmes, planning…

  • What are NPV, IRR, DCF… in capital budgeting?

    What are NPV, IRR, DCF… in capital budgeting?

    (This post explains what are NPV, IRR, DCF, Time value of money, Hurdle rate or opportunity cost of capital, accounting rate of return, pay- back period etc.) The price of groceries or any other items purchased by you today will not be same next year. The purchasing ability of…

  • What is Benefit to cost ratio?

    What is Benefit to cost ratio?

    Benefit to cost ratio is used to calculate the NPV in a proportion or ratio format. Here, the present value of future cash flows is calculated on proportion method, though, the method of calculation is similar to NPV method. Benefit to cost= Present value of investment/ present value (PV)…

  • What is Sinking Fund?

    Sinking fund is also known as depreciation fund.  Sinking Fund is a fund into which a company sets aside its revenue over a period of time, in order to fund a future capital expense or used to replace the asset at the end of its useful life or for…

  • What is Amortization of loan/debt?

    Amortization is the process of paying off loan amount over a period with regular equal payment.  Now a day, it is common that banks fix number of equated monthly installments (EMI) for Home loans, consumer loans etc. for repayment of loan granted by them typically amortizing their loan. How…

  • What is EMI and how to calculate EMI?

    EMI is acronym to an equated monthly installment (EMI). It is a fixed amount payable by a borrower to a lender at each calendar month at a stated date. Under this system the principal and interest thereon is repaid through equal monthly interest over the fixed tenure of the…

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