Annuity Method Of Depreciation

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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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RELATED FAQS
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    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
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    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
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