It is always advisable for a company to save money out of its profits for redeeming its debentures when they become due. For this purpose the company sets aside a part of its every year in separate reserve fund called ' Sinking Fund ' or ' Debenture Redemption Fund '. According to the prevalent accounting practice, the word ' Fund ' in relation to a ' Reserve ' should be used only where the reserve is invested in outside securities.
Sunday 3 March 2013
Why sinking fund or debenture redemption fund is created for redemption of debenture ?
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