# Sinking Fund

#### Keuriseutin

##### New member

Problem: A debt of P1,000,000 whose quarterly interest rate is 4% must be repaid in 5 years. To discharge the debt, quarterly deposits are made into a sinking fund which earns interest at the rate of 10% compounded quarterly.
Question:
1. How much is the book value of the liability at the end of year 3?
2. How much is the accumulated value of the sinking fund at the end of year 2?

Kindly guide me where did I go wrong with these.. Thank you!!

#### blamocur

##### Full Member
How did you get those answers ?
Also: what are the amounts of the quarterly deposits ?

#### JeffM

##### Elite Member

Problem: A debt of P1,000,000 whose quarterly interest rate is 4% must be repaid in 5 years. To discharge the debt, quarterly deposits are made into a sinking fund which earns interest at the rate of 10% compounded quarterly.
Question:
1. How much is the book value of the liability at the end of year 3?
2. How much is the accumulated value of the sinking fund at the end of year 2?

Kindly guide me where did I go wrong with these.. Thank you!!
The question as posed is unanswerable. Is interest on the sinking fund being paid or accrued? It looks as though it is being accrued.

Is interest on the debt being paid or accrued?

The quarterly deposits to the sinking fund are made when, at the start or end of each quarter?

What is the goal of the sinking fund? To cover the payment of the initial amount of the debt at maturity?

Book value is an accounting issue. There are different standards of accounting. Which standard are you supposed to use?