Question

What do you understand by fixed installment Method? 5Marks ​

Answer 1

Fixed Installment Method or Equal Installment Method or Straight Line Method or Fixed Percentage on Original Cost Method: In this method a fixed or equal amount of depreciation written off as depreciation at the end of each year, during the life time of the asset.

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Answer 2

Answer:

As the name of the method implies, under fixed installment method of depreciation the amount of depreciation each year is fixed and equal. At the end of each year, a fixed amount is removed from the book value of the asset concerned and charged to profit and loss account (or income statement).

Explanation

This is the oldest and most commonly used method of depreciation. Here a fixed amount of depreciation is charged every year during the lifetime of the machine. There at the end of its useful life, the value of the asset will be zero. This is also known as straight-line method or original cost. method.

There are certain assets that give more or less the same service over their entire life, and when their useful life is over, they are of no value to the owners. A good example is a leasehold property. If a businessman acquires a property on a 100 years lease, the property would be of no value to him after 100 years as it would return to the original owner. For such a fixed asset, depreciation per year is arrived at by dividing its cost over the number of years it is expected to have a useful life

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