Question

Which depreciation method helps a firm accumulate funds for replacing an asset after its useful life?

Options

• Straight-Line Method

• Sinking Fund (Depreciation Fund) Method

• Machine Hour Rate Method

• Double Declining Balance Method

Answer 1

Sinking Fund (Depreciation Fund) Method

Explanation: 

Under this method, a fixed amount is set aside annually and invested to build a replacement fund by the end of the asset’s life.