Comments on: What is the difference between sinking funds and Amortization?

By: Stuart J

Stuart J — Wed, 22 Jul 2009 06:07:49 +0000

Amortization is the depreciation/appreciation of an intangible asset over a period of time, e.g. Shares etc.
A sinking fund is a method by which an organization sets aside money over time to retire its indebtedness. More specifically, it is a fund into which money can be deposited, so that over time its preferred stock, debentures or stocks can be retired.

By: Mathew C

Mathew C — Tue, 21 Jul 2009 09:12:45 +0000

When a company is in bad shape the lenders ask them to undertake restrictive covenents if money is to be lend. This restrictive covenent include sinking fund option meaning the company will have to keep aside a stipulated portion from their earnings to pay off the debt. This is sinking fund.
Ammortization is amount paid each year to retire a debt obligation or bond.