Valuation and Depreciation of Farm Assets

Valuation and Depreciation of Farm Assets

DOI: 10.4018/978-1-5225-3059-6.ch011
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Assets, especially fixed assets, are obtained at a cost and are used in the course of more than one production period. In line with the method of acquisition of the relevant asset, the need arises that their accurate values are appropriately spread over the lifetime of the asset in question and over the relevant production period. It is against this background that this chapter is devoted to highlighting the concept of asset valuation. The discussions are based on a review of relevant literature. It is concluded that the realistic valuation of assets involved in a farm enterprise is essential in ensuring that enterprise is a going concern. It is recommended that relevant contributions of the farm assets including hoes, machetes, head pans, wheelbarrows, and all should be meticulously and rigorously factored into the costs and returns of the production cycles to give a complete idea of the enterprise as a going concern. Furthermore, farm asset such as land that appreciates in value should be realistically incorporated in the valuation of the production in the farm venture.
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The Concept Of Value And Asset Valuation

The basis of economics is exchange of goods and services for money. A seller sells say cassava tubers to a consumer and buys vitamin C enriched cassava stems from the office of the Agricultural Development Programme. Both the farmer seller of cassava tubers and the extension agent seller of cassava stems have acquired something they wanted more than what they had.

According to Drummund and Goodwin (2004), a buyer places a greater value on the article bought than on the money exchanged for it. The same is also true of a seller: the seller places greater value on the money received than on the article sold. If it were not so, neither the buyer nor the seller would have allowed the transaction to take place.

According to Hingley and Osborn (n.d), quite frequently the term value is automatically equated with cost or monetary equivalent. They went further to argue against automatically equating value with a monetary equivalent citing the technique of value analysis which differentiates at least four types of value: use value, exchange value, esteem value and cost value.

Acceptably, value is different from cost and cost is different from price. Economics, especially in its policy applications essentially deal with value system of individuals and groups of individuals (Drummund & Goodwin, 2004). In a philosophical sense, value is what we think should be the case. This is against what we know to be the case (facts), and what we think to be the case (beliefs). As an action word, value means to place worth on a specific item, entity, thing or event. As a noun, it is a fair equivalent, the worth of something in terms of the amount of other things for which it can be exchanged or in terms of a medium of exchange as opposed to “automatic equivalent” of something. In economics, value can be construed as equivalent worth or return in money, material worth, and services. In the views of Drummund and Goodwin (2004), price refers to a per unit concept; for example, the price per liter of petrol. Cost refers to a total concept of price multiplied by quantity the quantity purchased. For example, the cost to fill up the tank of a petrol generator set.

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