Which of the following are correct about the Sinking Fund?
(A) It is a fixed term account.
(B) It is a set-up for a particular upcoming expense.
(C) A fixed amount at regular intervals is deposited in the Sinking Fund.
(D) It can be used in any emergency.
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 built up by equal periodic deposits over a fixed period to meet a specific future expense, such as replacing a machine or repaying a debt.
Checking the statements
(A) It is a fixed term account. — Correct. The deposits run for a fixed period, up to the date of the planned expense.
(B) It is a set-up for a particular upcoming expense. — Correct. This is the purpose of the fund.
(C) A fixed amount at regular intervals is deposited in the Sinking Fund. — Correct. The deposits form an annuity.
(D) It can be used in any emergency. — Incorrect. The fund is kept for its specific purpose, not for any emergency.