(a) Explain the following terms: (i) appreciation (ii) depreciation (iii) s salvage value (b) List two items on the farm which will normally appreciate valu...

Answer Details

(a) Explanation of terms

(i) Appreciation: An increase in the value or worth of an item with time or age, for example land whose value rises over the years.

(ii) Depreciation: A reduction in the value or worth suffered by an article, building, machinery or equipment with age, use or wear and tear.

(iii) Salvage value: The amount for which a depreciated article is finally sold or disposed of after usage, that is the value recovered at the end of its useful life.

(b) Two farm items that normally appreciate in value

1. Land.
2. Young/growing animals (growing crops are also acceptable).

(c) Calculations

The farmer bought the tractor for N12,000.00 and later sold it for N3,000.00 after using it from 1988 to 1997 (9 years).

(i) Salvage value = the amount realised on disposal:

\[ \text{Salvage value} = N3{,}000.00 \]

(ii) Overall depreciation = cost price - salvage value:

\[ = N12{,}000.00 - N3{,}000.00 = N9{,}000.00 \]

(iii) Annual depreciation = overall depreciation ÷ number of years of use:

\[ = \frac{N9{,}000.00}{9} = N1{,}000.00 \text{ per year} \]