Annuity Method of Depreciation

Annuity Method of Depreciation

A way to calculate the depreciation of an asset. Under the annuity method, one begins by calculating the internal rate of return and multiplying that by the original book value of the asset. One then subtracts the product from the cash flow the asset generates each year. This difference is subtracted from the book value (or the previous year's depreciated value) to arrive at the depreciated value. The annuity method is not approved by the Generally Accepted Accounting Principles.
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