Question

Under the annuity method the amount of total depreciation is determined by ______________.

• A. Deducting the scrap value from the cost of the asset
• B. Deducting the amount of interest from the cost of the asset
• C. Adding the cost of the assets and interest there on
• D. Adding the cost of the assets and expected cost of maintenance

Answer 1

The correct option is C Adding the cost of the assets and interest there on

Under the annuity method of depreciation the cost of asset is regarded as investment and a fixed rate of interest is calculated on it. The basic assumption lying is that if the firm has invested the same amount, he could have earned some interest.

Under this method, the asset account is not affected by the amount of depreciation and the assets are appeared in the balance sheet on its original value.

Annuity table are available which shows the amount to be written off every year to make an asset at nil value.