Asked by Mahmood Alfayoumi on Jun 22, 2024
Verified
Under what circumstances should a company stop saving into a sinking fund?
A) When the firm foresees closure and has no reason to replace depreciating equipment.
B) When prices of new equipment are rising dramatically.
C) Firms should never stop saving into a sinking fund.
D) When technological innovation in the industry is stagnant.
Sinking Fund
A savings account or fund dedicated to paying off debt or a bond, where money is set aside over time to manage future repayment obligations.
Depreciating Equipment
Equipment or machinery that decreases in value over time due to use, wear and tear, or obsolescence.
Technological Innovation
The development and application of new technologies and ideas to improve goods, services, or processes, enhancing efficiency or value.
- Understand the concept and purpose of sinking funds and scenarios for their optimal utilization or cessation.
Verified Answer
SJ
Sarah JasmineJun 24, 2024
Final Answer :
A
Explanation :
A sinking fund is primarily used for replacing depreciating equipment or repaying debt. If a company foresees closure and has no future need for equipment replacement, it would be logical to stop contributing to a sinking fund.
Learning Objectives
- Understand the concept and purpose of sinking funds and scenarios for their optimal utilization or cessation.