1
Question
In which method of calculating depreciation interest on the cost of the asset is taken into consideration ?
In which method of calculating depreciation interest on the cost of the asset is taken into consideration ?
Open in App
Solution
The correct option is A Annuity method
By using the asset, one loses not only the money spent on acquiring it but also the interest which would have been earned on the money. Therefore, depreciation should cover not only the cost of the asset but also an appropriate amount for interest. This is done in the Annuity method. Interest is calculated on the book value of the asset at the proper rate and debited to the asset. The amount is credited to interest account, which then goes to the credit side of the profit and loss account.
By using the asset, one loses not only the money spent on acquiring it but also the interest which would have been earned on the money. Therefore, depreciation should cover not only the cost of the asset but also an appropriate amount for interest. This is done in the Annuity method. Interest is calculated on the book value of the asset at the proper rate and debited to the asset. The amount is credited to interest account, which then goes to the credit side of the profit and loss account.
Suggest Corrections
0
Similar questions
View More
Join BYJU'S Learning Program
Explore more
Join BYJU'S Learning Program
