SPECIAL ACCOUNTS AND ENTRIES 151 



price being difficult to determine, it is necessary to esti- 

 mate a cost price for the products. This is sometimes 

 easily done by taking a percentage of market price say 

 5% or 10% off. Such an inventory valuation is unsatisfac- 

 tory as a rule. Livestock is inventoried at a fair value 

 on the farm, always less than the selling price, in order 

 to avoid showing fictitious profits. The same average unit 

 value for each class of livestock should be maintained from 

 year to year, as far as possible. 



Depreciation. Depreciation is a decrease in the value 

 of property. The term is used on a farm in connection 

 with buildings and equipment. Other possessions are not 

 considered as depreciating to the extent that special ac- 

 counting recognition must be taken of them. Hay may 

 depreciate in a stack or corn in a crib under certain con- 

 ditions, but such depreciation is taken care of in the an- 

 nual inventory. Taking an inventory, then, is one way of 

 providing for depreciation. It is known as the "Revalua- 

 tion" method of calculating the amount of depreciation. 

 There are two main points to consider in depreciation, (a) 

 the calculation of the amount of wear and tear expressed 

 in dollars and cents and (&) the recording of the amount 

 so calculated in the books. 



In the case of buildings and equipment it is more diffi- 

 cult and unsatisfactory to calculate depreciation accord- 

 ing to the revaluation method, so the percentage method 

 is used. There are several ways of calculating deprecia- 

 tion by percentage. The most common is called the 

 "straight line" method, in which the anticipated number 

 of years of life of the asset is divided into the original cost 

 in order to find the depreciation for each year. If a ma- 

 chine costs $100 and it is estimated to last 10 years, the 

 depreciation for each year is calculated as 1/10 of $100. 

 The 1/10 is more often reduced to a percentage basis, mak- 

 ing it 10% of $100. 



