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Resource Manual on IPPM in Vegetable World Education Philippines, Inc. D. Methods of Valuing the Items in the Farm Inventory The biggest problem in making an inventory is how to place accurate values to the items. So, farmers need to know the following terms: 1. Original Cost the actual purchase of the asset. It is appropriate for assets with short life span whose values do not change very much through time. 2. Normal Market Value the estimated average selling price of a project over a period of years 3. Present Market Value the appropriate price for the property at the time of inventory 4. Original Cost Minus Depreciation commonly used for properties that are used for several years 5. Cost Value a method of valuing a forest stand that can be used to value the growing timber crops Table 38. Suggested Valuation Method for Different Farm Properties Farm Property · Purchased feeds and supplies · Crops raised and homogeneous feeds · Livestock for sale · Breeding and work animals · Equipment and machinery · Growing tree crops · Buildings Suggested Valuation Method · Original cost · Present market value · Present market value · Normal market value · Cost minus depreciation · Cost value or market value · Cost (of construction) minus depreciation E. Determining Depreciation Depreciation represents the decrease in the value of a property due to normal wear and tear and obsolescence. The common ways of computing annual depreciation are: a) Straight-line method b) Declining balance method 206
Resource Manual on IPPM in Vegetable World Education Philippines, Inc. c) Sum-of-the-years digit method Straight-line Method In the straight-line method, first estimate the life span and scrap value from the original purchase price. Determine the annual depreciation using the formula: Annual Depreciation = Purchase Price - Scrap Value Estimated Life Span For example, the original cost of a farm implement is PhP 12,000. It has a life span of ten years and a scrap value of PhP 2,000. How much is the annual depreciation charge Solution: Annual Depreciation = PhP 12,000 - PhP 2,000 10 Years = PhP 1,000/year Declining Balance Method In the declining balance method, estimate the depreciation charge based on the original cost of the property, its life span and the percentage of the original cost to be charged for depreciation. Each year of use of the property reduces its estimation of the depreciation charge for the ensuing year. This method leaves a small, unrecovered balance at the last year of propertys useful life. Sum-of-the-Years-Digits Method For this method, first determine the life span of the property. Then take the sum of the digits of the years, and use this as the denominator of each years depreciation. For example, if the life span is 10, the sum-of-the-years-digits is 55 (10 + 9 + 8 + + 1) This becomes the denominator. This method assumes a heavy depreciation charge for the earlier years. To ensure this, the numerator for the first year takes on the value of the last year. It is just similar to a countdown, where we assign the last year, in this case 10, for year 1. We then arrive at a ratio where the numerator is what has been described before and denominator is the sumof-the-years-digits. To get the depreciation charge per year, multiply the ratio by the original cost. Source: Cruz, C. A. and M. Calderon. ENRM 231: Economics of Upland Resources. University of The Philippines Open University. 194-201 pp. 207
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ACKNOWLEDGM ENT World Education (IN
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Sources 203 Part XII: Farm Record K
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