Question : Questions : Different Sources of Finance
Statement 1: Retained earnings are an internal source of finance.
Statement 2: Companies do not use retained earnings for expansion and growth.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer:
Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.
Statement 1 is true. Retained earnings are considered an internal source of finance for a company. They represent the portion of a company's net profit that is not distributed as dividends to shareholders but is retained and reinvested within the company for various purposes.
Statement 2 is false. Companies often use retained earnings for expansion and growth. Retained earnings are a valuable source of funds that can be utilized by companies to finance new projects, invest in research and development, acquire assets, enter new markets, or engage in other growth-oriented activities.
