DEFINITION of 'Annuity Method Of Depreciation'
A method of depreciation centered around cost recovery and a constant rate of return upon any asset that is being depreciated. This method requires the determination of the internal rate of return (IRR) on the cash inflows and outflows of the asset. The IRR is then multiplied by the initial book value of the asset, and the result is subtracted from the cash flow for the period in order to find the actual amount of depreciation that can be taken.
BREAKING DOWN 'Annuity Method Of Depreciation'
The annuity method of depreciation is also commonly referred to as the compound interest method of depreciation. If the cash flow of the asset being depreciated is constant over the life of the asset, then this method is called the annuity method. However, the annuity method of depreciation is not endorsed by GAAP principles.

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What is the tax impact of calculating depreciation?
Understand the tax implications of a company's depreciation. Learn how differences in accounting methods change the amount ... Read Answer >> 
What is the relationship between accumulated depreciation and depreciation expense?
Understand the relationship between accumulated depreciation and depreciation expense. Learn how each one is accounted for ... Read Answer >> 
What are the different ways to calculate depreciation?
Read about some of the different allowable methods of calculating depreciation expenses as allowed by generally accepted ... Read Answer >> 
What are the different ways to calculate depreciation for tangible assets?
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How is salvage value used in depreciation calculations?
Learn how an asset's salvage value is subtracted from its initial cost to determine the amount by which an asset is depreciated ... Read Answer >> 
Is depreciation only used for tangible assets?
Learn if tangible assets can be depreciated, as well as what other assets are eligible for depreciation so you can account ... Read Answer >>