Which of the following are NOT correct about “Sinking Fund”?
(A) It does not have any specific purpose.
(B) It can be used in any emergency.
(C) Any amount, any time can be deposited in it.
(D) It is set up for a particular upcoming expense.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
A sinking fund is a fund built up by setting aside equal amounts at regular intervals, which earn interest, so that a known sum is ready on a fixed future date for a particular purpose (such as repaying a loan or replacing a machine).
(A) It does not have any specific purpose. — Incorrect. A sinking fund is created for a specific purpose.
(B) It can be used in any emergency. — Incorrect. It is kept for its planned use, not as a general emergency fund.
(C) Any amount, any time can be deposited in it. — Incorrect. Fixed amounts are deposited at regular intervals.
(D) It is set up for a particular upcoming expense. — Correct. This is the purpose of a sinking fund.
The statements that are NOT correct are (A), (B) and (C).