Describe annuity method of calculating depreciation
Briefly describe annuity method of calculating depreciation?
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Under this method, the purchase of an asset is considered an investment of capital on that an assured rate of interest is earned. Cost of the asset and the interest are written down annually by equivalent installments till the book value of the asset is decreased to zero. The annual charge by method of depreciation is found out from the allowance tables. The annual charge for depreciation will be credited to asset account as well as debited to depreciation account while the interest will be debited to asset account and credited to interest account. The drawback of this method is that it is a problematical method to accusation depreciation. Secondly, the yoke on Profit and Loss account goes on rising with the passageway of time and the amount of interest goes on losing ground as years pass by. Therefore this method is best suited to those assets that need considerable investment and do not necessitate repeated additions.
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