384 AGRICULTURAL ECONOMICS 



long before it is worn out. This is a frequent occurrence in manu- 

 facturing life, but less common in agriculture. 



125. THE DEPRECIATION ACCOUNT 1 

 BY E. H. THOMPSON AND H. M. DIXON 



In addition to the current farm expenses there are certain other 

 items, such as depreciation, which may be called fixed charges. These 

 occur on all farms to a greater or less extent. Buildings may be con- 

 structed so that they will last for one hundred years, or they may have 

 to be rebuilt every twenty-five or thirty years. The life of machinery 

 depends on the care given and the extent to which it is used. Although 

 there is no appreciable expense each year, these buildings and machines 

 eventually have to be replaced. It is proper that a proportionate 

 share of this replacement cost should be charged against, the farm each 

 year; otherwise, whenever a new barn or dwelling is built the entire 

 cost of this building would have to be charged against the business for 

 that particular year. Depreciation charges, therefore, are merely a 

 method of uniformly distributing these costs over the period of years 

 that they are in use. 



The annual depreciation on buildings will vary from less than i per 

 cent on very substantial stone or brick buildings to as high as 3 or 4 

 per cent on frame buildings. The rate of depreciation on machinery 

 will vary from 5 to 20 per cent, depending on the implement and the 

 way it is used. Probably from 7 to 12 per cent a year would be 

 approximately correct for most farms. The amount of depreciation 

 that should be charged each year as an expense is left to the judgment 

 of the person making the record. No set rules can be given, as no 

 two farms are exactly alike in this respect. 



C. Financial Records of the Farm as a Whole 



126. HOW THE OFFICE OF FARM MANAGEMENT ANALYZES 

 THE FARM BUSINESS 3 



BY E. H. THOMPSON AND H. M. DIXON 



Experience shows that it is not possible to distinguish profit- 

 able farms by casual observation. Where a farmer is operating a 

 large business, even a low rate of interest without any wages for him- 



1 Adapted from Farmers' Bulletin 661, p. 6. See also selections 93 and 95, in 

 chapter v. 



3 Adapted from Farmers' Bulletin 661, pp. i, 2, 9, 19-26. 



