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Concept of Depreciation Fund Method:
Under this method, an amount of depreciation is written off at the end of each year. Depreciation fund method is also known as sinking fund method. Whatever fund written off each year again reinvested in some government papers or somewhere else. The reinvested amount again added with the depreciation fund. This is a continuous process for the lifetime of the asset. It is a good way to save money for future consumption of assets.
The Depreciation fund method also allows exempting some tax to the entrepreneur of business. It also reduces the burden of the firm regarding the shortage of fund for the new asset.
Functionality of Depreciation Fund Method
It helps in maintaining the working capital of the enterprise. For example, a company purchased a machinery worth $10000, with a life of 10 years. The company will have to replace it with a new one after the expiry of the life of the machine. So that company provides depreciation on its assets for accumulating a sum which is equivalent to the cost of the machine.
The depreciation under this method can be calculated with the help of sinking fund table. It is calculated at a given rate of interest for a particular period of time. We at 24x7assignmenthelp.com are also available to help you with the task assigned to you on depreciation fund method assignment help and depreciation fund method homework help.
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