Sinking Funds and Depreciation Concepts

The video explains the concept of a sinking fund using a truck purchase example. It covers how depreciation decreases the value of an asset over time, while inflation increases the cost of a new asset. The video demonstrates calculating the future value of a truck and the necessary savings to replace it. It concludes with setting up a sinking fund to save the required amount over time.

What is the primary purpose of a sinking fund?

• To reduce the cost of current assets

• To save money for future asset replacement

• To increase the value of an asset over time

• To avoid paying taxes on assets

What does depreciation refer to in financial terms?

• Increase in asset value over time

• Fluctuating asset value over time

• Stable asset value over time

• Decrease in asset value over time

How does inflation affect the cost of new assets?

• It keeps the cost stable

• It decreases the cost

• It has no effect on the cost

• It increases the cost

In the example, what was the initial cost of the truck purchased in 2019?

• 1.5 million rand

• 500,000 rand

• 2 million rand

• 1 million rand

What is the projected value of the truck in 2024 due to depreciation?

• 500,000 rand

• 1.4 million rand

• 733,904 rand

• 1 million rand

What is the estimated cost of a new truck in 2024 considering inflation?

• 733,904 rand

• 1.2 million rand

• 1 million rand

• 1.4 million rand

How much money does the truck owner need to save to cover the cost difference?

• 500,000 rand

• 668,647.71 rand

• 1.4 million rand

• 1 million rand

What is a sinking fund primarily used for?

• To increase asset value

• To reduce current expenses

• To avoid taxes

• To save for future asset replacement

What interest rate is offered by the bank for the sinking fund?

• 5% compounded annually

• 10% compounded monthly

• 15% compounded annually

• 12% compounded monthly

How many payments will be made into the sinking fund over five years?

• 12 payments

• 60 payments

• 24 payments

• 36 payments