Concept Of Fixed Installment Method Of Providing Depreciation

Fixed installment is the earliest and one of the widely used methods of providing depreciation. This method is based on the assumption of equal usage of asset over its entire useful life. It is also called straight line method for the reason that if the amount of depreciation and corresponding time period is plotted on a graph, it will result in a straight line. It is called fixed installment method because the amount of depreciation remains constant from year to year. According to this method, a fixed and an equal amount is charged as depreciation in every accounting period during the life time of an asset.

This method is referred to an equal installment method or original cost method or straight line method. The following points should be considered while calculating the amount of depreciation.
* The amount of depreciation is always fixed or equal in the years to come. Depreciation is charged equally throughout the effective life of the asset.
* The amount of depreciation is calculated where the rate of depreciation is given:
Annual Depreciation= Given%/100 X(cost of assets+installation cost-estimated scrap value)
*The amount of depreciation is calculated where the life of the fixed asset is given:
Annual Depreciation(D) = (O+I-S)/N x100
Where,
O= Original cost of an assets
S= Estimated scrap value
D= Annual depreciation
I= Installation cost
N= Life of the asset

Alternatively,
* The rate of depreciation to be applied where the rate of depreciation is not given
Rate of depreciation= 1/N X100 = .....% p.a