(a) Explain the following terms: (i) appreciation (ii) depreciation (iii) s salvage value (b) List two items on the farm which will normally appreciate value. (c) A farmer bought a fairly used Fiat tractor for 312,000.00 in 1998. He later sold it for 33,000.00 in 1997 when he discovered that it was expensive to maintain. Find the tractors: (i) salvage value (ii) overall depreciation; (iii) annual depreciation
Explanation
(a)(i) Appreciation: This refers to an increase in value or worth of an item with time or age. (ii) Depreciation: This refers to a reduction in value or worth suffered by an article, building, machinery, equipment etc with age. (iii) Salvage value: Due to depreciation, the value or worth of an article decreases and are therefore sold. The amount for which such an article is sold after usage is its salvage value. (b) Items in the farm which may appreciate are: growl crops, young animals, land. (c)(i) Salvage value of tractor = 3,000.00 (ii) Overall depreciation = cost price - salvage value of tractor (or depreciating base). = N12,000.00 - N3,000.00 = N9,000.00 (iii) Annual depreciation overall depreciation Number of years Number of years (or useful life) = 1988 to 1997 = 9 years Annual depreciation = N9,000.00/9 = N1,000.00
