Attempt IIFCL Grade A Accounting, Taxation Practice Quiz

1. In project finance, the concept of ‘non-recourse financing’ implies that:

Lenders have full recourse to the sponsors’ assets in case of default
Repayment is solely dependent on the cash flows generated by the project itself
The government guarantees repayment of all debt obligations
Equity investors bear no risk of loss under any circumstances

2. A Special Purpose Vehicle (SPV) is created in project finance primarily to:

Avoid payment of corporate income tax on project revenues
Ensure the project’s financial risks are ring-fenced from the sponsors’ balance sheets
Facilitate hostile takeovers of competing infrastructure companies
Provide unlimited liability protection to government entities

3. The Debt Service Coverage Ratio (DSCR) is best defined as:

Net cash available for debt service divided by total debt service obligations
Net operating income divided by total debt outstanding
Net profit divided by total equity capital
Gross revenue divided by interest expense

4. In project finance, which of the following risks is specifically addressed by a ‘completion guarantee’?

Market risk arising from fluctuation in output prices
The risk that the project will not be completed on time or within budget
Currency risk due to forex fluctuations during project life
The risk that the project will not be completed on time or within budget

5. A Loan Life Coverage Ratio (LLCR) of 1.4 indicates that:

The project is over-leveraged and at risk of default
The project’s interest coverage on the project is 40% below industry norms
The project’s NPV of future cash flows is 40% higher than the outstanding loan
The project generates 1.4 times its equity requirement annually

6. Which of the following is an example of a ‘take-or-pay’ contract in project finance?

A contract where the buyer pays only for goods actually delivered
A contract where the buyer must pay a minimum amount whether or not delivery is taken
An agreement where the seller guarantees delivery at a fixed price
A revolving credit facility available to the project company

7. In project finance, ‘financial close’ refers to:

The date when the project achieves its target commercial production level
The end of the project’s operational life
The point at which all financing agreements are signed and conditions precedent are met
Completion of final audit of project accounts

8. The ‘waterfall mechanism’ in project finance refers to:

The sequential priority order in which cash flows are distributed to various stakeholders
A method for calculating depreciation on project assets
A risk mitigation mechanism for flood-prone infrastructure
A technique for pricing IPO shares in infrastructure companies

9. Which ratio is most commonly used by lenders to evaluate the long-term financial viability of an infrastructure project?

Price-to-Earnings Ratio
Project Life Coverage Ratio (PLCR)
Book Value per Share
Dividend Payout Ratio

10. In project finance, ‘construction risk’ is primarily borne by:

The lenders through higher interest rates
The EPC contractor through fixed-price EPC contracts
The government through viability gap funding
The end-users of the infrastructure

11. A Viability Gap Funding (VGF) mechanism is designed to:

Bridge the gap between project costs and the funding available from commercial sources for socially desirable projects
Fund projects where commercial viability is strong but social returns are low
Provide equity support to large private sector companies
Replace the need for project debt in infrastructure financing

12. In a Build-Operate-Transfer (BOT) project, ownership of the project asset at the end of the concession period typically transfers to:

The senior lenders who financed the project
The original equity sponsors
The government or the procuring authority
A multilateral development institution

13. Interest During Construction (IDC) in project finance refers to:

Interest income earned on surplus project funds during construction
The interest that accrues on drawn-down loans during the construction phase and is capitalized into total project cost
A penalty fee charged by lenders for delayed construction completion
Interest paid to subcontractors for delayed payments

14. Which of the following best describes ‘merchant risk’ in power project finance?

Risk that the EPC contractor will default on the construction contract
Risk arising from the use of imported equipment without a service contract
Risk of theft or damage during transportation of equipment
Risk that electricity will be sold at prevailing market prices without a guaranteed Power Purchase Agreement

15. In project finance, a Debt Service Reserve Account (DSRA) is maintained to:

Pay dividends to equity investors during low-profit periods
Fund major capital expenditures planned during project operation
Reimburse government taxes on project revenues
Cover debt service payments if project cash flows are temporarily insufficient

16. Under the Companies Act, 2013, the minimum number of directors required for a public limited company is:

Two
Seven
Three
Five

17. Under Ind AS 16, the cost model for Property, Plant & Equipment requires the asset to be carried at:

Fair value less any subsequent impairment losses
Cost less accumulated depreciation and accumulated impairment losses
Net realisable value as on the balance sheet date
Replacement cost adjusted for technological obsolescence

18. The Goods and Services Tax (GST) in India follows which principle for interstate supply of goods?

Destination-based taxation principle
Origin-based taxation principle
Production-based taxation principle
Uniform tax principle irrespective of origin or destination

19. Under the Income Tax Act, 1961, Section 80IA provides deductions in respect of profits from:

Export of goods and services
Scientific research and development activities
Donations to charitable institutions
Infrastructure development undertakings

20. In accounting, the ‘matching principle’ requires that:

Assets must equal liabilities plus equity at all times
Revenues should be matched to the highest possible expense category
Revenues and the expenses incurred to earn them must be recognised in the same period
Cash inflows must match cash outflows on a quarterly basis