Multiple choice

Under annuity method the net charge to profit & loss account

  1. remains fixed for each year

  2. decreases year after year

  3. increases year after year

  4. none of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under the annuity method, the total charge to P&L (depreciation plus interest on the sinking fund) increases each year. This happens because the sinking fund accumulates more money over time, earning compound interest, while the depreciation component remains constant on the asset's diminishing value. The interest portion grows steadily, causing the net annual charge to rise.

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