Theory question 109
Farm Management and Records(a) Explain the following terms: (i) appreciation; (ii) depreciation; (iii) salvage value.
(b) List two items on the farm which will normally appreciate in value.
(c) A farmer bought a fairly used Fiat tractor for N12,000.00 in 1988. He later sold it for N3,000.00 in 1997 when he discovered that it was expensive to maintain. Find the tractor's: (i) salvage value; (ii) overall depreciation; (iii) annual depreciation.
Show the model answer
(a)(i) Appreciation: increase in the value of an asset over time
(ii) Depreciation: decrease in the value of an asset due to wear and tear, age or obsolescence
(iii) Salvage value: the value or price of an asset at the end of its useful life
(b) Any two: land; young livestock (calves, chicks, piglets); seedlings/young tree crops; buildings in some cases
(c)(i) Salvage value = N3,000.00
(ii) Overall depreciation = 12,000 − 3,000 = N9,000.00
(iii) Years of use = 1997 − 1988 = 9; annual depreciation = 9,000 ÷ 9 = N1,000.00
Show the working: cost − salvage value, then divide by years of use.