1 2 3 4 5 6

At the end of Interest Periodic Periodic Sinking Fund Book Value

the period Income on Deposit In Increase in Accumulated P80,000
Sinking Fund Fund Fund

.015 x (5) * (2) +(3) (4) +(5) * -(5)

1 10,924.49 10,924.49 10,924.49 69,075.51
2 163.87 10,924.49 11,088.36 22,012.85 57,987.15
3 330.19 10,924.49 11,254.68 33,267.53 46,732.47
4 499.01 10,924.49 11,423.50 44,691.03 35,308.97
5 670.37 10,924.49 11,594.86 56,285.89 23,714.11
6 844.29 10,924.49 11,768.78 68,054.67 11,945.33
7 1,020.82 10,924.49 11,945.31 79,999.98 0.02
Total 3,528.55 76,471.43 79,999.98
Illustration: A company established a sinking fund that earns 3% every six months for a
purchase of a new equipment amounting to Php 80,000 at the end of 3.5 years. Construct a
Sinking Fund.
Solution:
FV= P80,000
i= 0.03/ 2 = 0.015
n=3.5x2=7
𝑆𝑖𝑛𝑘𝑖𝑛𝑔 𝐹𝑢𝑛𝑑 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 = 𝐹𝑉x i / (1+i) ^n-1
𝑆𝑖𝑛𝑘𝑖𝑛𝑔 𝐹𝑢𝑛𝑑 𝑃𝑎𝑦𝑚𝑒𝑛𝑡= 80,000x 0.015/ (1.015) ^7-1
𝑆𝑖𝑛𝑘𝑖𝑛𝑔 𝐹𝑢𝑛𝑑 𝑃𝑎𝑦𝑚𝑒𝑛𝑡= 80,000x0.015/0.1098449
𝑆𝑖𝑛𝑘𝑖𝑛𝑔 𝐹𝑢𝑛𝑑 𝑃𝑎𝑦𝑚𝑒𝑛𝑡= 80,000x 0.13655616
𝑆𝑖𝑛𝑘𝑖𝑛𝑔 𝐹𝑢𝑛𝑑 𝑃𝑎𝑦𝑚𝑒𝑛𝑡= 10,924.49

A sinking Fund schedule is constructed as follows: