The correct answer is: D. Sinking fund method.
The sinking fund method is a depreciation method that takes into account the interest on the cost of the asset. This means that the depreciation charge is higher in the early years of the asset’s life, when the interest charge is higher, and lower in the later years, when the interest charge is lower.
The other methods of calculating depreciation do not take into account the interest on the cost of the asset. The annuity method is a depreciation method that calculates the depreciation charge as a constant amount each year. The fixed instalment method is a depreciation method that calculates the depreciation charge as a percentage of the asset’s original cost. The insurance policy method is a depreciation method that calculates the depreciation charge as a percentage of the asset’s expected future value.
The sinking fund method is the most accurate method of calculating depreciation, as it takes into account the time value of money. However, it is also the most complex method to calculate.