When i was reading today auditing from notes of Surbhi Bansal (chapter name - some accounting principles, short note name 'deperciation') i read the following lines.
"SINKING FUND IS USUALLY CREATED TO RETAIN THE AMOUNT OF DEPRECIATION CHARGED IN THE PROFIT AND LOSS ACCOUNT".
So my question is what is the meaning of the above sentence? Explain me please.
Thank you very much to everyone whosoever replies me.
Suresh Prasad
(www.aubsp.com)
(15630 Points)
Replied 23 April 2011
| Originally posted by : pujit | ||
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When i was reading today auditing from notes of Surbhi Bansal (chapter name - some accounting principles, short note name 'deperciation') i read the following lines. "SINKING FUND IS USUALLY CREATED TO RETAIN THE AMOUNT OF DEPRECIATION CHARGED IN THE PROFIT AND LOSS ACCOUNT". So my question is what is the meaning of the above sentence? Explain me please. Thank you very much to everyone whosoever replies me. |
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Dear Pujit jee,
As we know very well that Due to dep. there is no any outflow of money from the entity.
We creat Sinking Fund so that we can Retain this money in a safe side and for that the amount of fund is invested in the Sinking fund investment as well.
And whenever we need the amount at the end of Useful life of Assets Depreciated ..for purchase the New one we utilise the same invetment for that.
That is why we call "SINKING FUND IS USUALLY CREATED TO RETAIN THE AMOUNT OF DEPRECIATION CHARGED IN THE PROFIT AND LOSS ACCOUNT".
CAclubindia
