Question

No charge is created against assets when retained earnings are taken as a source of finance.

• A. True
• B. False

Answer 1

The correct option is A True

Retained Earnings-

• These earnings are the portion of a business’s profits which are not distributed as dividends to equity shareholders but are retained for reinvesting back into business.

• It is also known as ploughing back of profit, self financing or reserves or surplus.
  

• No charge is created against assets as earnings or funds belongs to company. Therefore, it is an internal source of finance.
  

• It is an most important source of finance which carries almost no risk.