Question

Depreciation fund method is also known as _________.

• A. Annuity method
• B. Sinking fund method
• C. sum of digits method
• D. double digit method

Answer 1

The correct option is B Sinking fund method

Under sinking fund method, depreciation charged is invested in outside securities at the end of the first year. Interest is earned during the second year and the first entry for investment of interest is made at the end of the year. Amount of depreciation is calculated with the help of sinking fund tables and hence depreciation fund method is also known as sinking fund method.