The correct answer is: Diminishing Balance Method.
In the diminishing balance method, the asset account is debited with interest. This is because the depreciation expense is calculated as a percentage of the asset’s book value, which is the original cost of the asset minus the accumulated depreciation. The book value of the asset decreases each year as depreciation is taken, so the interest expense also decreases each year.
The sum of year’s digit method, annuity method, and insurance policy method are all methods of calculating depreciation expense, but they do not involve depreciating the asset account with interest.
In the sum of year’s digit method, the depreciation expense is calculated as a percentage of the asset’s book value, where the percentage is determined by the sum of the digits from 1 to the number of years of the asset’s estimated useful life.
In the annuity method, the depreciation expense is calculated as a constant amount each year. This amount is determined by dividing the asset’s original cost by the number of years of the asset’s estimated useful life.
In the insurance policy method, the depreciation expense is calculated as a percentage of the asset’s book value, where the percentage is determined by the annual premium that would be paid on an insurance policy that covers the asset’s estimated useful life.