Depreciation method of sinking fund refers to the method of setting up sinking fund to calculate depreciation amount in order to accumulate funds needed to repay debts due when issuing corporate bonds. This method is different from straight-line depreciation method and accelerated depreciation method, and it should consider the time value of funds, that is, the interest factor.

The depreciation method of sinking fund assumes that the same amount of funds are withdrawn at the beginning of each period and accumulated at a certain compound interest. When the service life of an asset expires, only a sum of money needs to be accumulated, which is enough for the replacement of the asset. Then the amount of funds to be withdrawn in each period, plus the principal and interest calculated by compound interest according to the withdrawn funds, is the depreciation expense to be withdrawn in each period. As the interest gradually increases with the accumulation of the fund, the depreciation expense accrued in each period is also increasing year by year.