Question

TRUE/FALSE QUESTIONS:

1) The out-put based method of estimating completion is based on the retail price of the finished components of the project.

2) When a bank requires a compensating balance to be kept in a non-interest bearing account in order to grant a loan, the effective interest rate of the loan is always higher than the stated rate.

Answer 1

Q.1)

Answer: false

Cost price should be considered here instead of retail price. The estimated completion should be calculated on the cost price of finished components.

Q.2)

Answer: true

Compensating balance is the minimum balance must be kept by the account-holder. A non-interest bearing account is a current account. If the loan is taken for a specific interest rate then that is stated rate; if it is compounded in periods it becomes effective interest rate; since the compounding is in effect, the effective rate must be higher than stated rate.