Sinking Find & Audit.docx

Sinking fund is regularly constituted for the redemption of loans raised by Govt. The Audit Officer has to satisfy himself that credit to such fund is in accordance with the terms and conditions given by Govt. in the prospectus of the loan. The General principles in accordance with the amortization...

Sinking fund is regularly constituted for the redemption of loans raised by Govt. The Audit Officer has to satisfy himself that credit to such fund is in accordance with the terms and conditions given by Govt. in the prospectus of the loan. The General principles in accordance with the amortization arrangements are detailed below: i\) Amortization arrangements for loans for unproductive purposes may be related to some extent to the period of maturity of loans. It is wiser to relate the arrangements to the objects of borrowing than to the currency of actual loans. Where material assets is produced, the amortization period should never exceed the life of assets. ii\) The arrangement for the amortization for loans for productive purposes must depend on the particular circumstances of each case. Where the net earning power of an asset exceeds the interest on the debt, it may not be necessary to suggest amortization. Where depreciation or renewal reserves are constituted for replacement of asserts made for a loan fund, amortization is often omitted altogether. Normally the rate of amortization should be related to the life of the revenue producing asset.