23 November 2013
Hello Everyone! Can anyone please let me know the basic purpose of creating Sinking Fund? How does it help in redemption of debentures? Would it not enough to just invest some money (sinking fund investment)?why SF then? Sinking Fund just ensures that the money does not flow out of the company in the form of dividends (pls correct me if i am wrong) but does not ensure ceasing of outflow other than in the form of dividends,isn't it?
In short...please explain how does sinking fund work?
25 November 2013
This is very important method of redemption of debenture. Sinking fund means take one part of profit for repayment of debenture. This is calculated with sinking fund table. This is invested in such scheme which gives us Lumpsum amount so that we can easily repay the debenture without any tension. This is very popular and scientific method of redemption of debenture. In this method we open the sinking fund and sinking fund investment account. Sinking fund’s other name is also Debenture Redemption Fund Account.
26 November 2013
Sir! But why do we need to create fund and show it on the liabilities side? Won't it suffice if just SF investment a/c is created and shown on assets side?
26 November 2013
It is the system of double entry system and show the liability requirement against the sinking fund investment. such as we cannot use that investment anyother purpose other than debenture redemption
CAclubindia
