Question

Under which of the following method depreciation is charged uniformly?

• A. Insurance policy method
• B. Annuity method
• C. Depreciation fund method
• D. All of the above

Answer 1

Answer: (D)

All of the above

Insurance Policy Method In this method, instead of purchasing securities, an insurance policy is purchased for an amount equal to the cost of replacement of asset.

The annuity method of depreciation is also referred to as the compound interest method of depreciation. If the cash flow of the asset being depreciated is constant over the life of the asset, then this method is called the annuity method. As such, the interest is charged on the diminishing balance of the asset.

The sinking fund method is a technique for depreciating an asset while generating enough money to replace it at the end of its useful life. As depreciation charges are incurred to reflect the asset's falling value, a matching amount of cash is invested.