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Question

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

A
True
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B
False
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Solution

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.

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