Which of the following statements are correct?
(A) In the sinking fund a fixed amount at regular intervals is deposited.
(B) Sinking fund is a long-term account which can be closed any time.
(C) In a saving account, any amount, any time can be deposited.
(D) Sinking fund can be used only for the purpose it was created.
Choose the correct answer from the options given below.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (C) and (D) only
A sinking fund is built by setting aside equal amounts at regular intervals to meet a particular future expense (repaying a debt, replacing a machine) at a particular time. A savings account is kept for any purpose.
Checking the statements
(A) In the sinking fund a fixed amount at regular intervals is deposited. — Correct. The fund grows from equal periodic payments, like an annuity.
(B) Sinking fund is a long-term account which can be closed any time. — Incorrect. A sinking fund is meant to be used at a particular time for its purpose; it is not an account that can be closed whenever one likes.
(C) In a saving account, any amount, any time can be deposited. — Correct. A savings account has no fixed amount or schedule of deposits.
(D) Sinking fund can be used only for the purpose it was created. — Correct. This is the main difference from a savings account, which may serve any purpose.