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Aanuity Method of Depreciation

The annuity method of depreciation focuses on cost recovery and a constant rate of return through the asset's life, also called the compound interest method. It involves calculating the internal rate of return on an asset's cash flows, then multiplying the beginning book value by the IRR to determine the periodic depreciation charge. If cash flows are constant over the asset's life, it is called the annuity method. However, this method is not used in practice or recommended by GAAP.

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51 views1 page

Aanuity Method of Depreciation

The annuity method of depreciation focuses on cost recovery and a constant rate of return through the asset's life, also called the compound interest method. It involves calculating the internal rate of return on an asset's cash flows, then multiplying the beginning book value by the IRR to determine the periodic depreciation charge. If cash flows are constant over the asset's life, it is called the annuity method. However, this method is not used in practice or recommended by GAAP.

Uploaded by

Gaurav
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Aanuity method of depreciation

focusing upon cost recovery and a constant rate of return on the


investment in depreciable assets; also called compound interest
method of depreciation. This method entails first obtaining the
internalrate of return (IRR)on the cash inflow and outflow of the
asset. Then the asset's beginning book value is multiplied by the
IRR and this amount is subtracted from the cash flow for the
period to determine the periodic depreciation charge. If cash
flow is constant over the determined life of the asset, it is then
called the annuity method. This method is not used in practice
and not recommended by GAAP.

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