Question

Which of the following is/are advantage(s) of the equal installment method?
1. Easy to understand; calculation simple;
2. Decreasing depreciation charges cancel out increasing repair charges;
3. No re-calculation necessary when further assets are purchase.

• A. 1, 2 and 3
• B. 1 and 2 only
• C. 1 only
• D. 3 only

Answer 1

The correct option is C 1 only

Equal installment method - According to this method, the amount of yearly depreciation is calculated as below:
(Cost of the asset - Scrap value) / Estimated life in years

The only benefit of this method is that an equal amount of depreciation is charged every year throughout the life of the asset, making the calculation of depreciation and of the cost comparison easy.