Explain the advantages and disadvantages of using Annuity method or system to calculate depreciation of fixed assets

March 18th, 2011 Comments off
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{ See article on the different methods of depreciation of fixed assets }

Below are some of the advantages and disadvantages of using the annuity method or system :

 

Advantages:

  • Useful method to use in respect to long-term lease which generally involve considerable capital outlay
  • Interest on capital investment is taken into account. This method is perceived to the most exact, precise and scientific form from the point of view of calculations.

Disadvantages:

  • Though interest is taken into consideration but the rate is still arbitrary and not based on law
  • Computation using this method becomes more complicated where there are frequent additions, dismantling, etc taking place. Not so suitable for assets like Plant & Machinery.

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