Which of the following statements are correct about the sinking fund?
(A) It is a fixed term account.
(B) It is set-up for a particular upcoming expense.
(C) In the sinking fund a fixed amount at regular intervals is deposited.
(D) It can be used in any emergency.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (C) only
A sinking fund is built up by depositing a fixed amount at regular intervals, so that a known sum is ready at a fixed future date.
So a sinking fund runs for a fixed term, takes equal regular deposits, and is kept for one particular future expense, such as replacing a machine or repaying a loan.
Checking the statements
(A) It is a fixed term account. — Correct. It is maintained up to the date of the planned expense.
(B) It is set-up for a particular upcoming expense. — Correct. For example, replacing a machine or repaying a loan.
(C) In the sinking fund a fixed amount at regular intervals is deposited. — Correct. Equal payments are made at regular intervals.
(D) It can be used in any emergency. — Incorrect. The fund is meant only for the purpose for which it was created.