Question

The amount of depreciation provided in the sinking fund method when compared to annuity method is?

• A. Higher
• B. Lower
• C. Equal
• D. Unpredictable

Answer 1

The correct option is A Higher

Under the sinking fund method, the business set aside an amount of money to invest annually so that the principal and interest earned on the fund will be enough to replace the asset.

The sinking fund method provides for a fund to purchase a new asset when the old asset if fully depreciated.

This requires higher depreciation expense compared to annuity method.