(a) Explain the meaning of each of the following terms in relation to agricultural practices: (i) appreciation; (ii) depreciation: (iii) salvage value. (b) ...

(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.

Answer Details

(a)

1. Appreciation in agriculture refers to an increase in the value of an asset, such as land, livestock, or machinery. This can occur due to factors such as increased demand for a particular crop, improvements in infrastructure or technology, or natural resource depletion that makes land more scarce and valuable.
2. Depreciation in agriculture refers to a decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors that reduce its usefulness or efficiency. This can be caused by factors such as age, inadequate maintenance, or changes in farming practices that make certain equipment or technology less relevant or useful.
3. Salvage value in agriculture refers to the estimated value of an asset at the end of its useful life. This value is based on factors such as the condition of the asset, market demand for similar assets, and other economic factors. Salvage value is used in calculating the depreciation of an asset over time.

(b)

1. The salvage value of the tractor is the amount for which it was sold when it was no longer useful for the farmer, which is N3,000.00.
2. The total depreciation of the tractor is the difference between its purchase price and its salvage value, which is N12,000.00 - N3,000.00 = N9,000.00.
3. The annual depreciation of the tractor is the total depreciation divided by the number of years the tractor was in use, which is (N12,000.00 - N3,000.00) / 9 = N1,000.00 per year.
4. There is no appreciation in this scenario because the value of the tractor decreased over time, from N12,000.00 to N3,000.00. Appreciation would occur if the value of the tractor had increased due to factors such as inflation or improvements in technology that made it more valuable over time.