COST ACCOUNTING 277 



try is made at the close of the fiscal year before distribut- 

 ing the Equipment Expense over the various farm ele- 

 ments using equipment, as presented in Illustration 53. 



The amount of the interest for the year is found by tak- 

 ing 4% of the value of equipment at the beginning of the 

 year. In special cases, it is permissible to consider interest 

 for portions of a year when expensive pieces of machinery 

 are bought during the year. For example, if $500 worth 

 of equipment is purchased on Sept. 1, interest at 4% on 

 $500 for 6 months to February 28 ($12.50) may be con- 

 sidered in addition to the interest calculated as described 

 above, on the equipment balance at the beginning of the 

 year. 



Another way of calculating interest on equipment is 

 to take 40% 1 of the charge for depreciation as shown in 

 the Equipment Expense Account. After making the cal- 

 culation in this way, however, the entry is made in the 

 same way as when the amount is calculated on the equip- 

 ment value itself. 



Interest on Working Capital. As previously stated, in- 

 terest on land, buildings, livestock and equipment is con- 

 sidered as an element of cost largely for the purpose of 

 charging the farm elements with an expense proportion- 

 ate to the amount of capital used. If this principle were 

 to be followed out in detail, it would be necessary to charge 

 the several farm elements with interest on working capital 

 used in their production. 



For this purpose, working capital includes the amount 

 of capital tied up in the production of a crop or in raising 

 livestock, aside from the capital invested in land, 'build- 

 ings, livestock or equipment. Such working capital in the 

 case of a crop is best illustrated by seed, labor, horse labor 

 and other elements of expense incurred in sowing, culti- 



1 Calculation derived from figures presented in U. S. Dept. of 

 Agriculture Bulletin No, 338. 



