(a) Explain the meaning of each of the following terms in relation to agricultural practices: (i) appreciation; (ii) depreciation: (iii) salvage value.
(b) A fiat tractor was purchased by a farmer in 1978 for N12,000.00. In 1987, the tractor was sold off for N3.000.00 when it was no longer economical to maintain it. Calculate the: (i) salvage value of the tractor; (ii) total depreciation; (iii) annual depreciation; (iv) appreciation.
Explanation
(a)(i) Appreciation in agricultural practices refers to the gain or increase in the value or worth of an asset as the asset is being used over time e.g growing crops, young farm animals, cash crops appreciate.
(ii) Depreciation refers to the loss or reduction in the value or worth of an asset as the asset is being used overtime. e.g Tractor, drinkers, tools, implements do depreciate.
(iii) Salvage value: This is the amount which an asset is sold off when it is longer economical to keep or when the cost of maintenance of the asset is too high.
(b)(i) The salvage value of the tractor N3,000.00 i.e. the price at which e tractor was sold off.
(ii) Total depreciation = Cost price – salvage value of the tractor = N12,000.00- N3,000.00 = N9,000.00
(iii) Annual depreciation = total depreciation/no of years OR = Cost price – Salvage value/life span of tractor = N12,000/1987 – N3000/1978 =N9000/9years = N1000.
(iv) Appreciation: The tractor suffered a loss or reduction in worth. 9 years. Therefore, appreciation is nil.