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When a dairy farmer buys a cow, he is allowed to deduct 50 percent of its price

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When a dairy farmer buys a cow, he is allowed to deduct 50 percent of its price in the first year as a form of accelerated depreciation. How would you determine the appropriate depreciation schedule for a dairy cow? How does the accelerated depreciation described above affect the user cost of capital of a dairy cow?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Chongtham Allaylay
I worked as tutor for JRF/SRF students before in Krishi Coaching Institute, Raipur. Currently working as Asst. Prof. at Shards University.
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Public Finance

Public Finance

ISBN: 978-0078021688

10th edition

Authors: Harvey Rosen, Ted Gayer

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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