Problem Set 3 Key

# Problem Set 3 Key - AAE 320 Farming Systems Management...

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1 AAE 320 Farming Systems Management Problem Set #3 Due Wed. April 9, 2007 ANSWER KEY 1) You had a machine shed built and bought a new combine. The machine shed costs \$75,000 and the combine costs \$180,000. For your internal accounting purposes, you will depreciate the machine shed over 15 years and the combine over 10 years. The machine shed will have zero salvage value, but the combine will have a salvage value of \$80,000. For this problem, you will make 6 tables that report the annual amount of depreciation during each year and the value of the asset at the end of each year. There will be 3 tables for the machine shed and 3 for the combine. The 3 tables for each asset will each use a different depreciation method. The first table will use Straight Line depreciation, the second will use Sum of the Year’s Digits, and the third will use 150% Declining Balance. You will do the full life cycle for each asset (i.e., 15 years for the shed and 10 years for the combine). For the 150% Declining Balance, do not let the asset value fall below the salvage value (set depreciation to zero if needed) and if the implied value does not reach the salvage value by the end of the useful life, take the remaining value in the last year as depreciation. Note: I found it easiest to use a spreadsheet program to do the calculations. Be sure to label each table so I can know what the asset is and the depreciation method. Answers to Problem 1 presented as a series of tables. Machine Shed Straight Line Year Depreciation Value At Year Start Year End Value 1 5,000 75,000 70,000 2 5,000 70,000 65,000 3 5,000 65,000 60,000 4 5,000 60,000 55,000 5 5,000 55,000 50,000 6 5,000 50,000 45,000 7 5,000 45,000 40,000 8 5,000 40,000 35,000 9 5,000 35,000 30,000 10 5,000 30,000 25,000 11 5,000 25,000 20,000 12 5,000 20,000 15,000 13 5,000 15,000 10,000 14 5,000 10,000 5,000 15 5,000 5,000 0 Machine Shed Sum of Year’s Digits Year Depreciation Value At Year Start Year End Value 1 9,375 75,000 65,625 2 8,750 65,625 56,875 3 8,125 56,875 48,750 4 7,500 48,750 41,250 5 6,875 41,250 34,375 6 6,250 34,375 28,125 7 5,625 28,125 22,500 8 5,000 22,500 17,500 9 4,375 17,500 13,125 10 3,750 13,125 9,375 11 3,125 9,375 6,250 12 2,500 6,250 3,750 13 1,875 3,750 1,875 14 1,250 1,875 625 15 625 625 0

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2 Machine Shed 150% Declining Balance Year Depreciation Value At Year Start Year End Value 1 7,500 75,000 67,500 2 6,750 67,500 60,750 3 6,075 60,750 54,675 4 5,468 54,675 49,208 5 4,921 49,208 44,287 6 4,429 44,287 39,858 7 3,986 39,858 35,872 8 3,587 35,872 32,285 9 3,229 32,285 29,057 10 2,906 29,057 26,151 11 2,615 26,151 23,536 12 2,354 23,536 21,182 13 2,118 21,182 19,064 14 1,906 19,064 17,158 15 17,158 17,158 0 Combine Straight Line Year Depreciation Value At Year Start Year End Value 1 10,000 180,000 170,000 2 10,000 170,000 160,000 3 10,000 160,000 150,000 4 10,000 150,000 140,000 5 10,000 140,000 130,000 6 10,000 130,000 120,000 7 10,000 120,000 110,000 8 10,000 110,000 100,000 9 10,000 100,000 90,000 10 10,000 90,000 80,000 Combine Sum Year’s Digits Year Depreciation Value At Year Start Year End Value 1 18,182 180,000 161,818 2 16,364 161,818 145,455 3 14,545 145,455 130,909 4 12,727 130,909 118,182 5 10,909 118,182 107,273 6 9,091 107,273 98,182 7 7,273 98,182 90,909 8 5,455 90,909 85,455 9 3,636 85,455 81,818 10 1,818 81,818 80,000 Combine 150% Declining Balance Year Depreciation Value At Year Start Year End Value 1 27,000 180,000 153,000 2 22,950 153,000 130,050 3 19,508 130,050 110,543 4 16,581 110,543 93,961 5 13,961 93,961 80,000 6 0 80,000 80,000 7 0 80,000 80,000 8 0 80,000 80,000 9 0 80,000 80,000 10 0 80,000 80,000