Sinking Fund Method


DEFINITION of 'Sinking Fund Method'


BREAKING DOWN 'Sinking Fund Method'

The amount of money that needs to be added to the asset-replacement fund each year is calculated by determining how much it will cost to replace the asset, how many years the asset is expected to last and what rate of interest can be earned as well as how much can be earned through the effects of compound interest. The sinking fund method is not common, and is not desirable when interest rates cannot reasonably be predicted.

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  1. What are the disadvantages of using the sinking fund method to depreciate an asset?

    Using the sinking fund depreciation definitely impinges on a company's cash flow and profitability during the depreciation ... Read Full Answer >>
  2. What is the difference between amortization and depreciation?

  3. Can working capital be depreciated?

  4. Do working capital funds expire?


  6. Who decides if a financial security should be escheated?


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