I. Asset Valuation and Depreciation Exercises

I. ASSET VALUATION AND DEPRECIATION EXERCISES

Assets can be valued using either a cost-based valuation system or a market-based valuation system. For each asset listed, place a “C” in the blank under the most appropriate valuation method to use for that asset when using a cost system. Place an “M” in the blank under the valuation method that should be used under a market based valuation system.

Valuation Methods

Farm

Cost lessProductionMarket

ASSETDepreciationCostCostValue

Tractor

Grain sorghum

in storage

Purchased

Feeder cattle

Purchased beef

breeding cows

Raised beef

breeding cows

Wheat crop

growing in field

Land

Hay barn

II. STRAIGHT LINE DEPRECIATION

The next two problems provide a closer look at Straight Line versus Double Declining Balance Depreciation. In these problems, assume all machinery is bought at the first of the year.

MachineCostSalvage ValueUseful Life

1) Tractor A50,000 20,0005

2) Tractor B60,000 05

3) Combine84,000 07

______

Assume you own the machinery above. Calculate annual depreciation using the straight-line method.

Tractor A / Tractor B / Combine
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7

III. DOUBLE DECLINING BALANCE

Now Calculate annual depreciation on this machinery using double declining balance. Be careful not to exceed the salvage value. If the salvage value is zero, switch to straight-line in the year when straight-line yields higher depreciation. (Use the remaining value as the starting point when you change.)

Tractor A / Tractor B / Combine
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7

IV. DEPRECIATION RECORDS

I.M. Farmer lost all depreciation records from past years and needs help reconstructing a depreciation schedule through 2004.

From the following information, calculate the depreciation for each item for each appropriate year. For items purchased during the year, only a prorated part of the first year’s depreciation can be taken. Use the attached form and complete all columns including the totals. Watch the purchase dates and begin depreciation in the year of the purchase, not before.

For convenience, round everything to the nearest whole dollar.

Deprec.Useful Salvage

Purchase DateItemMethodLife CostValue

1) Jan. 1, 2001TruckS / L10$32,420$8,800

2) July 1, 2001 CombineDDB5$131,000 $25,000

3) Sept. 1, 2001Tractor 150% Declining8$86,840 $15,000

Balance

4) Jan. 1, 2002PlanterSOYD10$28,335$6,500

5) Jan. 1, 2002PickupDDB and S.L.*8$17,955$4,800

*Use DDB for 2002 and 2003, then switch to S.L. for 2004

DEPRECIATION SCHEDULE - I.M. FARMER

Date Acquired / Item / Cost / Salvage Value / Method / Life / 2001 / 2002 / 2003 / 2004
Depre. this year / Book Value / Depre. this year / Book Value / Depre. this year / Book Value / Depre. this year / Book Value
TOTALS