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A Question Of Depreciation


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#1 Farming guy

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Posted 14 June 2016 - 05:18 PM

I read an article summarizing the advice from some agricultural economist (who's name I have now forgotten).  The title was "Improve income by cutting costs" (As if THAT thought never occurred to us farmers!)  

 

One of his gems of advice was to cut depreciation by $25 per acre.  My question to any business or economics expert is how do you cut depreciation costs of equipment that is already fully depreciated?  Nearly all of our farm's equipment is fully depreciated and only running as a result of our learning to make cheap repairs on the go.

 

 



#2 exchemist

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Posted 16 June 2016 - 05:17 AM

I read an article summarizing the advice from some agricultural economist (who's name I have now forgotten).  The title was "Improve income by cutting costs" (As if THAT thought never occurred to us farmers!)  

 

One of his gems of advice was to cut depreciation by $25 per acre.  My question to any business or economics expert is how do you cut depreciation costs of equipment that is already fully depreciated?  Nearly all of our farm's equipment is fully depreciated and only running as a result of our learning to make cheap repairs on the go.

I agree entirely - it sounds like someone trying to make a science out of what in Britain we would call the bleedin' obvious.

 

Since depreciation "cost" is a function of the initial capital cost and of the period over which is it depreciated, I can only imagine he means either that you buy cheaper equipment (durrh) or that you write it off in the books over a longer period, thereby reducing the annual charge. But that is only a book-keeping exercise, at least until you take tax into account (I imagine you pay tax on your declared profit and so, as depreciation charges are treated as a "cost" that reduces profit, it will also reduce tax.)  

 

But maybe it would be helpful to see the original material, as it is always potentially unfair to rubbish someone on the basis of a second-hand  or partial account of what they have said.



#3 Cascabel

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Posted 16 June 2016 - 10:52 AM

I agree entirely - it sounds like someone trying to make a science out of what in Britain we would call the bleedin' obvious.

 

Since depreciation "cost" is a function of the initial capital cost and of the period over which is it depreciated, I can only imagine he means either that you buy cheaper equipment (durrh) or that you write it off in the books over a longer period, thereby reducing the annual charge. But that is only a book-keeping exercise, at least until you take tax into account (I imagine you pay tax on your declared profit and so, as depreciation charges are treated as a "cost" that reduces profit, it will also reduce tax.)  

 

But maybe it would be helpful to see the original material, as it is always potentially unfair to rubbish someone on the basis of a second-hand  or partial account of what they have said.

Most tax authorities will limit the extent to which book depreciation costs are allowable.



#4 Farming guy

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Posted 17 June 2016 - 05:18 PM

 

 

 

 

But maybe it would be helpful to see the original material, as it is always potentially unfair to rubbish someone on the basis of a second-hand  or partial account of what they have said.

Yeah, sorry about that.  I have a family member who hates to let old magazines collect, and they are often gone before I know it.

 

It just seems that there are a lot of "experts" around telling us what to do when they don't actually do any of it themselves.

 

This actually relates to my post on the power of friction.  The worn out part in the photo will wear out (depreciate ) as a function of the amount of material that passes through it and not as a function of the acres covered.