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Definition of sinking fund method?
Sinking fund method is a method of depreciation if a large sum of money is required for replacement of an asset at the end of its effective life it may not be advisable to leave in the amount of depreciation set apart annually, for it may or may not be available in the form of the readily realisable assets to the concern at the time it is required. To safegaurd this position the amount annually provided for depreciation may be placed to the credit of the sinking fund account
What is depreciation reserve fund?
Accumulated depreciation which is not shown in income and expenditure account as expenditure and the same is included in the net profit and shown separately as depreciation reserved fund while adding it in the capital fund.
What is the purpose of a sinking fund?
A sinking fund has a very important purpose. The purpose of a sinking fund is to reduce the amount of debt by repaying or purchasing outstanding loan amounts.
What is sinking fund approach?
A sinking fund approach is a type of economic approach that involves setting aside some profits over time. This money is often set aside to fund large capital expenses.
In a Sinking Fund cash or cash assets are set aside for what purpose?
A bond sinking fund is a restricted asset of a corporation that was required to set aside money for redeeming or buying back some of its bonds payable.
Sinking fund method for depreciation?
Sinking fund method for depreciation The straight line method has equal annual depreciation for every year. There are other methods which has more depreciation allocated to the earlier years like Written-Down Value (WDV) method in which depreciation is charged at fixed rate (%) on the reducing balance (i.e. cost less depreciation) every year. The sinking fund method allocates more depreciation to the later years. The depreciation for the first year equals the annual deposit needed for a sinking fund to accumulate at the given rate to an amount that equals the depreciation base. For each consecutive year, the annual depreciation equals the annual sinking fund deposit plus the interest earned on the fund up to that year.
A problem and solution by using sinking fund method of depriciation?
example of sinking fund
Definition of sinking fund method?
Sinking fund method is a method of depreciation if a large sum of money is required for replacement of an asset at the end of its effective life it may not be advisable to leave in the amount of depreciation set apart annually, for it may or may not be available in the form of the readily realisable assets to the concern at the time it is required. To safegaurd this position the amount annually provided for depreciation may be placed to the credit of the sinking fund account
What is depreciation reserve fund?
Accumulated depreciation which is not shown in income and expenditure account as expenditure and the same is included in the net profit and shown separately as depreciation reserved fund while adding it in the capital fund.
What is the purpose of a sinking fund?
A sinking fund has a very important purpose. The purpose of a sinking fund is to reduce the amount of debt by repaying or purchasing outstanding loan amounts.
How do you calculate sinking fund depreciation?
To calculate the annual amounts of sinking fund depreciation, you need to know the income-producing life of the machine, as well as the total amount of income (estimated to be) produced by the machine over that period. The actual economic depreciation in the income-producing value over one year is that value which would be necessary for one to put aside in a bank account, compounding interest, in order for the income to be replaced in the first year in which the machine no longer produces income (and subsequent years). If a machine will produce income for five years at a rate of $1000 per year, the income in the sixth year out (and subsequent years) will need to be replaced with interest generated on a theoretical present value deposited in an interest bearing account today. Assuming that the applicable Fed interest rate is 10%, you discount the $1000 sixth year payment to year one by that rate, and this principal (or present value) amount can be considered the sinking fund depreciation for that year. In years two through five, the depreciation will be calculated as this original present value increases with interest compounding. The principal, which is considered the depreciation, increases with each year due to the fact with each passing year, more money must be invested in order re replace lost sixth year income. In addition, the original present value used above is added to the increasing present value, to account for lost income needing to be replaced in years seven and onward. These calculations take place alongside other normal depreciation deductions on the value of the machine asset itself, and theoretically, income tax deductions should be allowed on the sinking fund depreciation as well as the ACRS schedule for the value of the machine.
What is reserve depreciation?
Accumulated depreciation which is not shown in income and expenditure account as expenditure and the same is included in the net profit and shown separately as depreciation reserved fund while adding it in the capital fund.
What is the Difference between the future value of annuity and sinking fund?
future value of an annuity is a reciprocal of a sinking fund
Which also treated as Depreciation fund?
No FLow
Is it necessary to provide depreciation in the business running in loses?
it is necessary to provide depreciation even business is running in loses or in profit because depreciation provides fund for future and remove the burden of fund for purchasing new machinery when old machinery are broken down.
What is sinking fund approach?
A sinking fund approach is a type of economic approach that involves setting aside some profits over time. This money is often set aside to fund large capital expenses.
What fund would a township report depreciation a. General fund b. Special Revenue c. Capital Projects d.Internal Service?
general fund
