2006, Volune 9, Paper 70
ISSN: 2209-6612

Depreciation Rates for Australian Tractors and Headers – Is Machinery Depreciation a Fixed or Variable Cost?

Peter R. Tozer – Research Economist, Department of Agriculture, Western Australia

Abstract

Seven different remaining value functions for tractors and harvesters were estimated using data from advertised prices for used farm equipment.  The generalised Box-Cox model was used to nest six of the seven functions.  The more complex Box-Cox function explained the data no better than simpler models such as the linear, sum-of-the-year’s-digits, or double-square root models.  The simpler functions were easier to manipulate to estimate depreciation rates and costs.  There were up to four components of depreciation, drive-away, brand, age, and use related, depending on functional form.  Drive-away depreciation is the immediate loss in value of a machine due to purchase, in some models this depreciation cost was higher than either age or use related depreciation costs.  When drive-away depreciation was treated as a separate cost to age and use depreciation, or when there was no drive-away depreciation due to functional form, the age to use depreciation cost ratios were in the range of 1.5-2 to 1.  Hence, tractor and header depreciation is a combination of fixed and variable depreciation.

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