Explain the advantages and disadvantages of using Annuity method or system to calculate 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.