Page 319 - Agriculture_Form_Three

Agriculture for Secondary Schools

4. In December 2018, a group of farmers bought a tractor for TZS 61,500,000.
They expected to sell off the tractor at the end of 2028 when its value would
be approximately TZS 7,687,500. Using the straight-line method, calculate the
annual depreciation of the tractor. What will be the value of the tractor at the end
of December 2024?

Valuation of farm business
Valuation involves setting value or attaching prices on property. In farm business,
various products are produced through the use and management of land, water,
labour, capital assets and other raw materials. When applied to farming business,
valuation involves setting prices on all farm possessions or assets. Such assets may
include: machines, buildings, livestock, stored farm produce and unused farm inputs
kept in the store and grown crops at the end of accounting period.

Valuation is usually done after preparing the inventory. The estimated value of
depreciated assets should also be noted (refer to Figure 14.2). Moreover, in valuing
farm business, both cash in hand and cash in bank are also included. The value of
the farm business which is determined at the beginning of an accounting period is
known as opening valuation while that at closing period is referred to as closing
valuation. Valuation of farm business helps the farmer to calculate his/her net worth
at any given time period. Net worth is the value of all non-financial and financial
assets owned by the farmer or farm business minus the value of all its outstanding
liabilities. The concept of net worth is elaborated more in the subsequent chapter.

Record
Inventory original value

Inventory Capital assets

Setting value/
Valuation attach prices

Figure 14.2: Inventory valuation process
Methods of valuing farm assets
There are various methods of valuing farm assets. The choice of method will depend
on the purpose of the valuation. You should be consistent in the method of valuation
as this will not only affect the computed profit and loss but also the net worth of the
farm. The common methods of farm valuation include the following:

Student’s Book Form Three
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