Which of the following pointers are the characteristics of sinking fund?
(A) It is a long term account which can be closed any time.
(B) It is set up for a particular upcoming expense.
(C) It can be used in any emergency.
(D) It can be used only for the purpose it was created.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (B) and (D) only
A sinking fund is money set aside regularly over a fixed period to meet a specific future expense or liability, such as replacing a machine or repaying a debt.
So a sinking fund is planned for one particular expense and earmarked for it alone.
Checking the statements
(A) It is a long term account which can be closed any time. — Incorrect. It is built up over a fixed period for a planned payment; closing it at will defeats that purpose.
(B) It is set up for a particular upcoming expense. — Correct. This is the defining feature of a sinking fund.
(C) It can be used in any emergency. — Incorrect. That describes an emergency fund, which is meant for unforeseen needs.
(D) It can be used only for the purpose it was created. — Correct. The money is earmarked for that one purpose.
CBSE Applied Mathematics (Class XII):
Sinking Fund
