Depreciation: spreading an asset's cost
Depreciation spreads the cost of a barn, tractor or milking equipment over the years you expect to use it. Each year's charge reduces reported profit without itself taking cash out of the farm. Include depreciation in your budget alongside cash flow to understand both cost and available money.
How do you work it out?
Subtract the expected resale value from the purchase cost, then divide by the years you expect to use the asset. For example, a milking machine costing 60,000 currency units, with no resale value and a 10-year working life, has yearly depreciation of 6,000 currency units.
Why does it matter for planning?
Depreciation includes a share of equipment costs in each year's budget. That helps you compare buying with renting and account for equipment when setting prices.
Questions from the farm
Is depreciation a cash expense?
Depreciation is an accounting expense. The cash was paid when you bought the asset; each year's depreciation charge spreads part of that earlier cost over the years you use it.
Which farm assets depreciate?
Buildings, vehicles, machinery and equipment lose value with use. Land is usually treated differently, so check your country's tax rules when calculating depreciation.
How HerdMobile helps
Bring your animals, feed stocks and farm accounts together on your Android phone. HerdMobile keeps your daily work moving offline: record events, compare feed quantities and follow sales and payments in one place. Use your own feeds and herd information to prepare a ration, then keep a backup file under your control.
Keep equipment purchase dates and costs in HerdMobile so you can find the figures you need when calculating yearly depreciation and planning your farm budget.
