Syntax error Differentiate between sinking fund depreciation and annuity method of depreciation.

Differentiate between sinking fund depreciation and annuity method of depreciation.

The major differences between sinking fund depreciation and annuity method of depreciation.

Sinking fund depreciation

  • Amount generated through depreciation is invested in market securities.
  • Funds available for replacement of assets.
  • First entry of interest will be made at the end of second year.
  • Sinking fund table is used to calculate depreciation.
  • Cost – interest = depreciation charged.
  • Interest increases with years.
  • Asset value is same.
  • Effect on P&L is same.

Annuity method of depreciation

  • Amount generated through depreciation is not invested in market securities.
  • Funds not available for replacement of funds.
  • Interest will be earned from starting day onwards.
  • Annuity table is used to calculate depreciation.
  • Cost + interest = depreciation charged.
  • Interest decreases with years.
  • Asset value decreases.
  • Effect on P&L account increases.
Updated on: 2020-09-29T13:43:06+05:30

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