Which of the following is not a merit of retained earnings?

As the funds are generated internally, there is a greater degree of operational freedom and flexibility.

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Retained earnings is a permanent source of funds available to an organisation.

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It is an uncertain source of funds as the profits of business are fluctuating.

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It enhances the capacity of the business to absorb unexpected losses.

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Solution

The correct option is C It is an uncertain source of funds as the profits of business are fluctuating.
A part of the net profits that are usually kept for use in the future is termed as retained earnings. Retained earnings are uncertain sources of funds as the profits of a business are fluctuating and can't be always determined. This is a demerit of retained earnings.

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Similar questions

Q. Retained earnings is a ___________ source of funds available to an organisation.

Retained earnings enhance the capacity of the business to absorb unexpected losses.

Retained earnings is a temporary source of funds available to an organization.

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___ is the process of estimating the financial requirements of an organisation specifying the sources of funds and ensuring that enough funds are available at the right time.

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