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AGEC 325 > Chapter 5 - The Income Statement and it Analysis > Flashcards

Chapter 5 - The Income Statement and it Analysis Flashcards

1
Q

Depreciation

A
  • Annual loss in value of durable assets due to use.
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2
Q

what assets do you depreciate?

A
  • needs an useful life of more than one year
  • needs a use in business
  • determinable useful life but not an unlimited life
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3
Q

Is land depreciable?

A
  • No, just improvements.
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4
Q

Three main reasons ag producers track depreciation

A
  • tax purposes
  • determine the true asset value
  • insurance purpose
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5
Q

Cost (Depreciation):

A
  • The price paid for the asset
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6
Q

Useful Life (Depreciation):

A
  • Number of years the asset is expected to be used in business
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7
Q

Salvage Value (Depreciation):

A
  • Expected market value of the asset at the end of its useful life
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8
Q

Book Value (Depreciation):

A
  • The asset’s original cost less accumulated depreciation
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9
Q

Straight Line Depreciation

A
  • Draw a straight line between beginning and ending values.

- constant

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10
Q

Straight Line Depreciation Formula

A

= (cost - salvage) / useful life

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11
Q

Declining Balance Depreciation

A
  • Constant percent of the asset’s current balance

- Book Value * R

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12
Q

Declining Balance Depreciation Formula

A
  • (100 / useful life) / 100
  • (150 / useful life) / 100
  • (200 / useful life) / 100
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13
Q

Comparison on Depreciations

A
  • Early Years: Double declining balance results in more depreciation than straight line.
  • Later Years: Straight line depreciation is higher than double.
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14
Q

Facts Straight Line

A
  • Slowest and easiest

- Finishes at salvage value without adjustments

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15
Q

Facts Declining Balance

A
  • Faster depreciation

- Requires adjustment to finish at salvage value

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16
Q

Economics

A
  • The study of how people make decisions under scarcity
17
Q

Scarcity

A
  • People have unlimited wants with limited resources
18
Q

Opportunity Cost

A
  • What you must give up when you make choices.

- Next best choice

19
Q

Opportunity Cost of Labor

A
  • Unpaid family labor

- What the operator would earn in best alternative

20
Q

Opportunity Cost of Management

A
  • Combine labor and management
21
Q

Opportunity Cost of Capital

A
  • Many uses for capital

- Higher expected return often carry higher risk

22
Q

Which of the following cannot be valued using the cost less accumulated depreciation method?

  • purchased dairy cow
  • barn
  • tractor
  • land
A
  • land
23
Q

Which of the following is not included as an expense on the net farm income statement?

  • depreciation
  • principal payments made on loans
  • the cost of supplies used but not yet paid for
  • interest payments made on loans
A
  • principal payments made on loans
24
Q

The depreciation method with the greatest depreciation in the first year is

  • All of these have the same depreciation in the first year.
  • 150% declining balance.
  • double declining balance.
  • straight line.
A
  • double declining balance.
25
Q

Book value and market value will always be the same dollar amount. (T/F)

A
  • False
26
Q

Depreciation reflects the decline in values of an asset over time due to wear and tear, age, and obsolescence. (T/F)

A
  • True
27
Q

All depreciation methods will result in the same total depreciation over the full life of the asset. (T/F)

A
  • True
28
Q

The Statement of Cash Flows summarizes

  • Everything the business owns and owes as of a certain date.
  • The change in owner equity in the business over a period of time.
  • All the income and expenses in the business over a period of time.
  • All the sources and uses of cash in the business over a period of time.
  • All the sources and uses of cash in the business over a period of time.
A
  • All the sources and uses of cash in the business over a period of time..
29
Q

Which financial measure shows how many dollars are left over after opportunity costs for equity capital and unpaid labor have been deducted from net farm income from operations?

  • return to labor and management
  • return to management
  • net farm income
  • return on assets
  • return to management
A
  • return to management
30
Q

It is possible for an asset to have a $0 salvage value. (T/F)

A
  • True

AGEC 325 (14 decks)

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