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A certain fixed amount from the gross rent or income is set aside annually to accumulate the cost of construction when the building life is over is called:
1. insurance
2. bad debts
3. sinking fund
4. repairs fund

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Correct Answer - Option 3 : sinking fund

Explanation:

A sinking fund is a fund that is built up for the sole purpose of replacement or reconstruction of a property when it loses its utility either at the end of its useful life or becoming obsolete.

The fund is regularly deposited in a bank or with an insurance agency so that on the expiry of the period of the utility of the building, a sufficient amount is available for its replacement.

The calculation of the Sinking Fund depends upon the life of a building as well as upon the rate of interest and it is generally calculated on 9/10 of the cost of construction as the owner will get 10% as scrape value of the building when the life of the building is over.

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