Can someone explain earmarking with an example?

Hello aspirant,

Hope you are doing well,

Earmarking is the practice of setting particular money aside for a specific purpose. The term can be used in several contexts, such as in congressional appropriations of taxpayer funds to individual practices like mental accounting.

For example, let's assume Company XYZ issues $100 million of bonds and that $20 million of it is earmarked for the construction of a new factory. This means that Company XYZ intends to set aside $20 million of the proceeds (perhaps even in a separate bank account) for the factory capital expenditures.

In a bankruptcy situation, the "earmarking doctrine" allows borrowers - just before filing for bankruptcy -- to make payments to creditors with funds given to the borrower by another creditor. These funds are earmarked in that they are dedicated to paying off a particular creditor and thus aren't technically part of the borrower's property. The earmarking doctrine requires these types of transfers to have a written agreement from all three parties, and the borrower cannot have control over the funds.

Hope this information helps,

Best of luck

Hii Namrata!

Earmarking is the keeping aside if money or fund for some special events or projects, mainly for a company or government earmark funds. For example - a firm setting out 100 million dollars for bonds and 20 million dollars as earmark for setting up a new company or building a factory.

Hope this helps.

Good luck!