Sinking fund :

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written 4.7 years ago by

teamques10 ★ 64k

Sinking fund is an amount which has to be set aside at fixed intervals of time(say annually) out of the gross income so that at the end of the useful life of the building or property the fund should accumulate to the initial cost of the property.
A building a machine, a vehicle, etc, becomes useless after certain years i.e at the end of its life. Hence, it is necessary to make some provision whereby the owner can accumulate to a sum required for rebuilding the premises or can replace the article.
For the above purpose sinking fund is periodically collected and deposited to a bank to get the highest compound interest or sinking fund insurance policy is made to the insurance company throughout the life of a building or article.
In case when a building is built up or a vehicle is purchased by taking a loan, a small portion of rent or income is set aside every year or at regular intervals and may be paid directly to the lender by way of installments.

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