Question

In which of the following methods, the asset account appears at its original cost through out its life?

• A. Annuity method
• B. Depreciation fund method
• C. Sum of years, digits method
• D. Machine hour rate method

Answer 1

The correct option is B Depreciation fund method

Depreciation fund method is used when an organization wants to set aside a sufficient amount of cash to pay to replace the asset when the life of asset is over. In this method, a separate depreciation fund account is created and the amount of depreciation for every year is transferred to such fund account instead of deducting the same from the asset value. Therefore, value of the asset shown in the balance sheet will remain the same and hence, the assets are shown on the original cost throughout its life.