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Question
Which method of charging depreciation considers that the business besides losing the original cost of the asset also loses interest on the amount used for buying the asset?
Which method of charging depreciation considers that the business besides losing the original cost of the asset also loses interest on the amount used for buying the asset?
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Solution
The correct option is A Annuity method.
Option A is the correct one.
The annuity method assumes that
the sum spent on buying an asset is an investment that should be invested to
yield interest. As such, the interest is charged on the diminishing balance of
the asset.
Option A is the correct one.
The annuity method assumes that the sum spent on buying an asset is an investment that should be invested to yield interest. As such, the interest is charged on the diminishing balance of the asset.
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