In which method of calculating depreciation, interest on the cost of the asset is taken into account?
In which method of calculating depreciation, interest on the cost of the asset is taken into account?
The correct option is B Annuity method.
Depreciation
is defined as the expensing of the cost of an asset involved in producing
revenues throughout its useful life.
There are various method of calculating depreciation such as
straight line method, Wriiten down value of assets method, sinking fund method, Annuity method, etc.
The annuity method of
depreciation is a process used to calculate depreciation on an asset
by calculating its rate of return as if it was an investment. This
method requires the determination of the internal rate of return (IRR) on the cash inflows
and outflows of the asset. The IRR is then multiplied by the initial book value
of the asset, and the result is subtracted from the cash flow for the period in
order to find the actual amount of depreciation that can be taken. It is
commonly used with assets that have a large purchase price and long life.
Depreciation is defined as the expensing of the cost of an asset involved in producing revenues throughout its useful life.
There are various method of calculating depreciation such as straight line method, Wriiten down value of assets method, sinking fund method, Annuity method, etc.
The annuity method of depreciation is a process used to calculate depreciation on an asset by calculating its rate of return as if it was an investment. This method requires the determination of the internal rate of return (IRR) on the cash inflows and outflows of the asset. The IRR is then multiplied by the initial book value of the asset, and the result is subtracted from the cash flow for the period in order to find the actual amount of depreciation that can be taken. It is commonly used with assets that have a large purchase price and long life.
