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