Discussion asset valuation. This is very important in farm management

1. VALUATION and
DEPRECIATION
of FARM ASSETS

2. VALUATION AND DEPRECIATION
OF FARM ASSETS
•Farm Valuation
•Definition of Depreciation
•Methods of Estimating Depreciation
•The Straight Line Method
•The Declining Balance Method
•The Sum of the Years-Digits Method
•Appreciation

3. Meaning of Valuation
- setting value or attaching
prices on property
- setting prices on farm
assets

4. Assets may include:
machines
buildings
livestock
 growing crops at the end of
accounting period
farm output in the store
unused farm inputs kept in the
store

5. Importance of Valuation
 Valuation of farm assets is
necessary to enable the farmer to
calculate his net worth at the end
of accounting period or at any
given period
 Both the opening valuation and
closing valuation form the major
part of profit and loss in farm
accounting

6. Methods of Valuation
 Valuation at cost: Computing with the actual
cost of purchasing the farm assets
 Valuation at cost less depreciation
charges: This method used mainly for farm
machineries and equipment
 Valuation at market price: Computing with
the current market price of the farm asset
 Valuation at cost or market price which
ever is lower

7. What is depreciation?
It is the reduction in value of
an asset through wear and
tear
◦ depreciation charges is the amount of
money or an allowance set aside annually
on farm assets
◦ Depreciation charge involves the
spreading of the cost of an asset over its
useful life

8. Advantage of charging
depreciation
1. The major advantage of depreciation is that it
enable farmer to replace farm
machines and equipment with
ease i.e. without resulting into borrowing.
2. Another advantage is that since depreciation is
regarded as cost and is always made before the
calculation of profit, it will seriously reduce
the amount of tax paid by the
business.

9. Advantage of charging
depreciation
1. The major advantage of depreciation is that it
enable farmer to replace farm
machines and equipment with
ease i.e. without resulting into borrowing.
2. Another advantage is that since depreciation is
regarded as cost and is always made before the
calculation of profit, it will seriously reduce
the amount of tax paid by the
business.

10. Methods of Estimating
Depreciation Charges
1. straight line method
2. the declining balance method
3. sum of the year digit method

11. 1. Straight line method
 also called the fixed-installment
method
 involves deducting the estimated
residual or scraps or salvage value of
an asset from its original cost and the
balance divided by the number of
years of estimated life of the asset.
 Annual Depreciation= Cost of Asset – Estimated Salvage
ValueEstimated Number of years of Life of Asset