Resume Wizard - Colorado FFA
|Junior and Senior level Ag Bus. |
Colorado Agriscience Curriculum
|Section: |Advanced Agribusiness |
|Unit: |Management of Agricultural Business Records |
|Lesson Title: |Understanding Depreciation |
|Colorado Ag Education |AGB11/12.03 - The student will be able to formulate and analyze financial records and use the information for evaluation and |
|Standards and Competencies|planning. |
| | |
| |Understand depreciation. |
| | |
|Colorado Model Content |Math Standard 1: Students develop number sense and use numbers and number relationships in problem-solving situations and |
|Standard(s): |communicate the reasoning used in solving these problems. |
| | |
| |Math Standard 2: Students use algebraic methods to explore, model, and describe patterns and functions involving numbers, |
| |shapes, data and graphs in problem-solving situations and communicate the reasoning used in solving these problems. |
| | |
| |Math Standard 3: Students use data collections and analysis, statistics, and probability in problem-solving situations and |
| |communicate the reasoning used in solving these problems. |
| | |
| |Math Standard 6: Students link concepts and procedures as they develop and use computational techniques, including estimation, |
| |mental arithmetic, paper-and-pencil, calculators, and computers, in problem-solving situations and communicate the reasoning |
| |used in solving these problems. |
|Student Learning |Upon completion of this unit The student will be able to: |
|Objectives: |Calculate depreciation utilizing the straight line method |
| |Calculate depreciation utilizing the Declining Balance Method of Depreciation. |
| |3. Calculate depreciation utilizing the sum of the years digits method of depreciation |
| |One 50 Minutes Class |
|Resource(s): |Introduction to Agribusiness Ricketts,Rawlins, 2001 |
| |Farm Business Management cde test 2006 |
| |Century 21 Accounting Ross, Hanson, Gilbertson, Lehmon 1995 |
|Instructions, Tools, |Italicized words are instructions to the teacher; normal style text is suggested script. |
|Equipment, and Supplies: | |
|Interest Approach: |Use the Descartes moment to discover what your students’ level of knowledge is regarding depreciation. Have students fill out |
| |handout # 1. (What they know about depreciation, what they think they know about depreciation, and what they don’t know about |
| |depreciation.) Have a few students share their responses to those questions. |
|Objective 1: |Good morning class. Today we are going to talk about depreciation. We will start our discussion with a quick review of what |
| |depreciation is. Who can tell me what depreciation is? That’s right. Depreciation is the decrease in value of assets over the |
| |course of their useful life. As we learned in Intro to Ag Business II, the Straight line Method of Depreciation is a very simple|
| |and easy method to use. |
| |The formula for straight line depreciation is as follows: |
| |Purchase price minus salvage value divided by the expected useful life. |
| |EXAMPLE $25000 pickup with a $1,000 salvage value depreciated over 6 years |
| |25000-1000/6 = 4000 DEPRECIATION PER YEAR |
|Objective 2: |The second method of depreciation we will examine today is the Declining Balance Method of Depreciation. This is one of the most|
| |common methods of depreciation used in Agriculture today. |
| |The formula for the Declining Balance Method of Depreciation is as follows BOOK VALUE / USEFUL LIFE X ACCELERATION FACTOR = |
| |ANNUAL DEPRECIATION. The most common acceleration factors are 2 (DOUBLE DECLINING) and 1.5 (TIME AND A HALF DECLINING BALANCE). |
| |Let’s look at an example of each. First we will look at the Double Declining Balance Method. Say we have a $30000 pickup with a |
| |useful life of 5 years and an acceleration factor of 2 and a salvage value of $5000, The annual depreciation would be calculated|
| |as follows: |
| |Year 1 depreciation = $30000 / 5 X 2 = $ 12000 Year 1 ending Book Value = $18000 |
| |Year 2 depreciation = $18000 / 5 X 2 = $ 7200 Year 2 ending Book Value = $10800 |
| |Year 3 depreciation = $10800 / 5 X 2 = $ 4320 Year 3 ending Book Value = $ 6480 |
| |Year 4 depreciation = $ 6480 / 5 X 2 = $ 2592 Year 4 ending Book Value = $ 3888 |
| |WE ARE ONLY ALLOWED TO TAKE ENOUGH DEPRECIATION TO EQUAL THE SALVAGE VALUE, SO THE CORRECT YEAR 4 DEPRECIATION WOULD BE $6480 |
| |MINUS $5000 WHICH EQUALS $1480. |
| |Our second example is of time and a half declining balance. Say we will be depreciating the same $30000 pickup over 7 years |
| |using 1.5 acceleration factor and a $5000 salvage value. The example follows: |
| |Year 1 depreciation = $30000 / 7 X 1.5 = $6429 Year 1 ending book value =$ 23571 |
| |Year 2 depreciation = $23571 / 7 X 1.5 = $5051 Year 2 ending book value = $ 18520 |
| |Year 3 depreciation = $18520 / 7 X 1.5 = $3969 Year 3 ending book value = $ 14551 |
| |Year 4 depreciation = $14551 / 7 X 1.5 = $3118 Year 4 ending book value = $ 11433 |
| |Year 5 depreciation = $11433 / 7 X 1.5 = $2450 Year 5 ending book value = $ 8983 |
| |Year 6 depreciation = $ 8993 / 7 X 1.5 = $ 1925 Year 6 ending book value = $ 7068 |
| |Year 7 depreciation = $ 7068 / 7 X 1.5 = $1515 Year 7 ending book value = $ 6913 |
|Objective 3: |The last method of depreciation we will look at today is the Sum of the Years Digits Method. This method uses fractions based on|
| |the useful life of the asset. For example if you are depreciating an asset with a 5 year useful life you would add the years |
| |digits as follows ( 1 + 2 + 3 + 4 + 5 = 15). Then a fraction is created for each year with the digits in reverse order. Year one|
| |has a fraction of 5/15 and year 5 has a fraction of 1/15. To calculate the yearly depreciation would times the fraction by the |
| |total depreciation to get the depreciation per year. So for a $30000 pickup with a 5 year useful life and a $5000 salvage value |
| |the yearly depreciation would look like this |
| |Year 1 5/15 X $25000 = $8333 depreciation |
| |Year 2 4/15 X $25000 = $6667 depreciation |
| |Year 3 3/15 X $25000 = $5000 depreciation |
| |Year 4 2/15 X $25000 = $3333 depreciation |
| |Year 5 1/15 X $25000 = $1667 depreciation |
| |TOTAL DEPRECIATION = $25000 OVER 5 YEARS |
|Review/Summary: |Assign students to small groups. Using the Show me What you know Moment review Material presented in this unit. |
|Application--Extended |Build an Excel Spreadsheet to calculate the three kinds of depreciation. |
|Classroom Activity: | |
|Application--FFA Activity:|Participate in the Farm Business Management CDE |
|Application--SAE Activity:|Have students calculate depreciation on assets used in their SAE |
|Evaluation: |1. Calculate depreciation on a $2000 personal computer with a 5-year useful life and a salvage value of $175 using the Straight |
| |line Method of Depreciation. |
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| |2. Calculate depreciation on a $2000 personal computer with a 5-year useful life and a salvage value of $175 using the Declining|
| |Balance Method of Depreciation. (Use an acceleration factor of 2). |
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| |3. Calculate depreciation on a $2000 personal computer with a 5-year useful life and a salvage value of $175 using the Sum of |
| |the Year’s Digits Method of Depreciation. |
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| |4. Write a short paragraph comparing the answers to questions 1, 2 and 3. Be sure to use complete sentences and proper |
| |punctuation in your answer. |
| | |
|Evaluation Answer Key: | Asset Personal Computer, Cost $2000, Salvage Value $175, Useful life 5 years |
| |YEAR STRAIGHT LINE DECLINING BALANCE SUM OF YEAR DIGITS |
| |1 $365 $800 $608.33 |
| |2 $365 $480 $486.67 |
| |3 $365 $288 $365.00 |
| |4 $365 $172.80 $243.33 |
| |5 $365 $ 84.20 $121.67 |
| |TOTAL $1825 $1825 $1825 |
| |4. Answer will vary. |
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