Question : Questions : Different Sources of Finance
Statement 1: Retained earnings are an internal source of finance.
Statement 2: Companies utilize retained earnings only for dividend payments.
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 indeed an internal source of finance for a company. It represents the portion of the company's profits that are not distributed as dividends but are retained and reinvested in the business.
Statement 2 is false. Companies utilize retained earnings for various purposes beyond just dividend payments. Retained earnings can be used for reinvestment in the company, funding growth initiatives, reducing debt, making acquisitions, or even distributing dividends, but they are not limited to dividend payments alone.
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