Which of the following method of depreciation takes into account the element of interest on capital outlay and seeks to write off the value of the asset as well as the interest lost over the life of the asset?

Depletion unit method

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Annuity method

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Sinking fund method

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All of the above

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Solution

The correct option is B Annuity method
Normally various methods of depreciation do not take into account the interest lost on capital invested in the asset. The Annuity Method removes this deficiency. Under this method, the amount spent on the purchase of an asset is considered as an investment, which is assumed to earn interest at certain rate.

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