GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Depreciation is smaller than the assets annual depreciable cost.
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Annual net incidence on profit and loss account remains constant due to changing fixed depreciation.
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Both (a) and (b)
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Amount of interest constantly declines due to assets reducing balance.
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Detailed explanation-1: -Sinking fund method: It helps in making arrangements for the funds that can be used to replace the product after its useful life is over. Using this method companies can arrange funds over the years for the replacement of an asset, that would have been a sudden huge payment otherwise.
Detailed explanation-2: -How do you calculate sinking fund? First, multiply the percentage interest by the principal amount. This will equate to the interest amount, which is then added to the principal amount. This total is the amount of money that needs to be in the sinking fund to meet the set financial obligation.
Detailed explanation-3: -Amount of depreciation is calculated with the help of sinking fund tables and hence depreciation fund method is also known as sinking fund method.