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Estimating Tractor Depreciation and Implications for Farm

Management Accounting

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JOURNAL OF FARM MANAGEMENT VOL. 12. No. 1 JULY 2004. PAGES 5 - 16

REFEREED PAPER

ESTIMATING TRACTOR DEPRECIATION AND

IMPLICATIONS FOR FARM MANAGEMENT
ACCOUNTING
Paul Wilson and Christopher Tolley

Using data on 968 observations of used tractor prices the results of a depreciation model are
compared with standard depreciation rates often used in Farm Management accounting. The
model results show that depreciation increases with age, hours worked and horse-power and
significant differences exists between percentage depreciation across some manufacturers.
The model explains 84.2% of the variation in depreciation and provides a significantly better
representation of tractor depreciation than standard methods of calculating depreciation that
ignore the effect of hours worked, horse-power and manufacturer. Future research should
concentrate on obtaining accurate information on manufacturer discounts and accounting for
the influence of care, condition and additional features of each tractor.

Keywords. Tractors, Depreciation, Management Accounting

1. Introduction
Machinery and power costs in agriculture account for a substantial
proportion of all costs. For example, on UK mainly cereal farms of 150-300
hectares, machinery and power accounts for 33% of all costs (Anon, 2003).
The importance of machinery costs in agriculture, and particularly tractor
costs, has motivated studies examining depreciation accounting techniques
(e.g. Yule, 1995) and tractor price-quality indices (Rayner, 1968; Cooper et
al., 1993). Tractor depreciation has been estimated in the US by Reid and
Bradford (1983), Perry et al. (1990), Cross and Perry (1995), Unterschultz and
Mumey (1996) and Dumler et al. (2000), and in the UK by Williams (1980),
Cunningham and Turner (1988) and Wilson and Davis (1998). Thus there has
been much interest in factors affecting tractor prices, depreciation and costs.
The above depreciation studies generally agree that the main factors affecting
depreciation include the tractor's age, usage, power and manufacturer. Data
availability have led different authors to also consider the effect of care and
condition, added extras, regional influences (e.g. Cross and Perry, 1995) and
tractor type (tracked or wheeled) (e.g. Hansen and Lee, 1991).
The general methodological approach taken in depreciation studies is to
regress percentage depreciation (or remaining value) upon a series of
explanatory variables (e.g. age, usage, power) that affect depreciation. Within
this approach the two main issues that arise are; the availability, assumptions
and manipulation of data to produce the required data set and the type of
regression and functional form chosen to represent the relationship between
depreciation and independent variables. With respect to data availability some
authors have utilised farm dispersal sale data (Perry et al., 1990; Cross and
Perry, 1995) whereby a direct price for a used tractor is obtained, whilst others
have used secondary sources taken from dealer advertisements in trade
magazines (Wilson and Davis, 1998). Studies that utilise data from trade
advertisements are based upon the advertised sale price from dealers.
5
Journal of Farm Management Vol.12 No.1 July 2004

However, the price that a vendor receives when selling, or trading-in, a tractor
(the trade-in price) will generally be lower than the advertised selling price. As
such, studies that use advertised dealer prices must make an assumption about
the difference between advertised prices and the trade-in price received by the
vendor. This is needed to calculate the value received for the used tractor net
of dealer margins. Moreover, in the UK at least, new prices of tractors are
typically not directly observable due to the manner in which tractors are
marketed (Cooper et al., 1993). New "list-prices" are available, but
considerable discounts1 are offered on these list prices, and thus a manner of
determining the difference between list- and actual- new prices must be either
assumed (Wilson and Davis, 1998) or calculated. The difficulties with
calculating this discount lies in the commercially sensitive nature of the
discounts offered and the requirement to determine the discount both over time
(historically) and across manufacturers.
The two main methods used to estimate depreciation in previous work
have been ordinary least squares (OLS) regressions and Box-Cox
transformations. Whilst there is general agreement that, for example,
depreciation and age are not directly linearly related, some previous work has
transformed the data prior to estimation. One approach is take the natural
logarithm of age and use this transformed variable to help overcome the non-
linearity between depreciation and age but still allow the use of OLS (Wilson
and Davis, 1998). Others have used the non-linear Box-Cox transformation
arguing that the flexibility of Box-Cox allows the data to determine the
functional form rather than imposing the form at the outset (Perry et al., 1990;
Cross and Perry, 1995; Unterschultz and Mumey, 1996). Dumler et al. (2000)
used pairwise comparisons of the mean absolute percentage error (MAPE) and
forecast accuracy regression models to assess which model was the most
accurate, finding that the Box-Cox model employed by Cross and Perry (1995)
was the most accurate of the six models considered2. However, it is difficult to
directly draw conclusions about the merits of the different models given that
the studies used to generate the parameter estimates utilised by Dumler et al.
(2000) were themselves derived from different data sets relating to different
market conditions. Moreover, the models considered by Dumler et al. did not
include any model estimated via OLS and thus does not provide a direct
examination of OLS versus non-linearly estimated depreciation models. In
addition a number of standard depreciation parameters or fixed depreciation
rates are often used in farm management accounting and there is little research
that examines how appropriately these standard rates accord with empirical
evidence.
The aims of this paper are to address the main points raised above. First,
to provide a detailed methodology of deriving and producing data sets which
give a realistic representation of the market price for new and used agricultural
tractors. Second, to briefly explore the differences that estimating linear and
non-linear models infer for predicting depreciation in tractors and provide

1. Typically such discounts can be up to 40% of the list price.

2. The models examined by Dumler et al. (2000) include regression models, fixed parameter
geometric models, US tax income methods and official US guides covering values of tractors
and farm equipment . See Dumler et al. (2000) for details.
6
Estimating Tractor Depreciation… .Management Accounting P. Wilson et al.

results of a preferred methodology for examining depreciation. Third, to

examine how closely results of this empirical study match standard
depreciation rates. The remainder of the paper is structured as follows. The
next section presents the data used; section 3 presents the methodological
approach taken and presents the results of the preferred model. Section 4
compares the results of the preferred model with standard methods of
calculating depreciation and provides tables of estimated trade-in values. The
final section provides summary comments and details some avenues for future
research.

2. Data
Data on used tractors were obtained from the trade magazine
advertisements in Farmers Weekly, Farm Ad and Wrights Farming Register
from January to October of 2001. Information recorded for each tractor were
the advertised price, age, number of hours worked, make and model. An age
boundary was imposed and only those tractors with a first registration of 1986
or later were included. Data were only taken from dealer or trade
advertisements and thus private sales were excluded. This was undertaken as
private sales will not offer warranty packages or after sales care as will be the
case for dealers. A total of 968 observations were recorded. In order to obtain
a price for each tractor net of the used-tractor-dealer-mark-up, it was assumed
that the difference between advertised price and trade-in value was a margin of
£500 plus 10% of the advertised price. This assumption was made to account
for a dealer margin recognising that the advertised sale price forms the starting
price for negotiation between dealer and purchaser of the second-hand tractor,
and is therefore often unlikely to be the final selling price of the second-hand
tractor. Therefore the above margin was calculated and subtracted from the
advertised dealer price to produce a net-of-dealer-mark-up-price received by
the vendor when selling the second-hand tractor to the dealer. To accompany
the used data set, list prices for each tractor when new were obtained from
Power Farming and Farmers Weekly. Following Wilson and Davies (1998)
this list price was then adjusted for inflation using the price index for
agricultural tractors (Central Statistical Office, various) to produce a real-
terms list price for each tractor. From the published list prices the power rating
of the tractor (in terms of engine horse-power) were also collected. As noted
above considerable discounts exist from the list price. Previous research used a
standard discount rate of 22.8% of the list price in the UK, but noted that this
was an area where further research was required in order to more accurately
reflect the variation in discounts offered by different manufacturers (Wilson
and Davis, 1998). To address this problem, dealers were approached for each
of the five main tractor manufacturers (which account for 90% of the
observations) and asked to provide a quote for a net of discount price for a mid
-range tractor. This was then calculated as a percentage of the list price to
determine the discount offered from the list price. However, this discount is
only applicable for the year of interest and it was not possible to obtain
historic discount rates. To overcome this issue an average discount rate for all
makes over the period 1986-2001 was calculated from the net of discount
prices quoted in Nix (various) and the average list prices for a range of tractors
from original list price data from Power Farming and Farmers Weekly.
7
Journal of Farm Management Vol.12 No.1 July 2004

Manufacturer specific discounts for the period 1986-2001 were then calculated
via a manufacturer correction factor. Manufacturer correction factors were
calculated by taking the difference between the manufacturer discounts in
2001 and the average discount calculated from Nix (2000) for 2001. This
correction factor was then applied to the average discount calculated from Nix
for each year to produce year specific manufacturer discounts. These
manufacturer specific discounts are given in Table 1 for 1986-2001. Discounts
are provided for the main five manufacturers; it was assumed that other
manufacturers offered the average discount.

Table 1. Calculated Percentage Discount Rate by Manufacturer 1986-2001

Year Discount Adjusted Case Ford/NH MF JD JCB Other
rate discount
calculated rate
from Nix
2001 19.44 28.83 37.12 18.95 29.11 27.50 31.49 28.83
2000 19.47 28.86 37.15 18.98 29.14 27.53 31.52 28.87
1999 13.72 23.11 31.40 13.23 23.39 21.78 25.77 23.11
1998 19.89 29.28 37.57 19.40 29.56 27.95 31.94 29.29
1997 23.35 32.74 41.02 22.85 33.01 31.40 35.39 32.74
1996 22.98 32.37 40.66 22.49 32.65 31.04 35.03 32.38
1995 23.53 32.92 41.21 23.04 33.20 31.59 35.58 32.92
1994 24.14 33.53 41.81 23.64 33.80 32.19 36.18 33.53
1993 19.95 29.34 37.63 19.46 29.62 28.01 32.00 29.34
1992 15.34 24.73 33.02 14.85 25.01 23.40 27.39 24.73
1991 15.54 24.93 33.22 15.05 25.21 23.60 27.59 24.93
1990 16.16 25.55 33.84 15.67 25.83 24.22 28.21 25.55
1989 20.24 29.63 37.92 19.75 29.91 28.30 32.29 29.63
1988 18.08 27.47 35.76 17.59 27.75 26.14 30.13 27.47
1987 14.17 23.56 31.85 13.68 23.84 22.23 26.22 23.56
1986 10.84 20.23 28.51 10.34 20.50 18.89 22.88 20.23

The percentage depreciation for each tractor was then calculated by the
difference in the new price net of discount and adjusted for inflation (new real
price) and the used price net of the dealer mark up divided by the new real
price and expressed as a percentage. Dummy variables were constructed for
five of the manufacturers3. Table 2 provides summary statistics for the data
set, indicating the large range of variation around the means for each of the
variables listed.4

3. Case (158 observations) was set as the base and dummy variables were constructed for
Ford/New Holland (263), Massey-Ferguson (160), John Deere (238), JCB (53) and "other"
(96). It is necessary to have k-1 dummy variables (where k = number of categories of the
qualitative variable (e.g. make)) to avoid perfect collinearity in the estimation of the regression
equation.
4. The year of life is included in preference to the age of a tractor, as a tractor enters its first
year of life as soon as it is purchased from new, whereas it does not become aged one until
after its first year of life.
8
Estimating Tractor Depreciation… .Management Accounting P. Wilson et al.

Table 2. Summary Statistics of Continuous Data.

New Price Used Price (net Percentage Year of life Hours Horse
(net of of dealer depreciation worked Power
discount) markup) rating (HP)
£ £
Mean 32 209 13 944 56.74 6.89 3 773 120.94
SD 9 739 7 028 16.85 3.58 2 213 37.34
Min. 7 053 2 200 5.72 1.00 80 20.00
Max. 68 823 40 000 87.98 16.00 12 000 306.00
3. Methodology and Results
The methodological approach taken was in-part designed to examine the
trade-off between using OLS and Box-Cox. The rationale behind this approach
lies in the ease of interpretation that OLS estimates provide versus the
flexibility and thus potential for a better explanation of the variation within the
data that the Box-Cox models may provide. Consequently, a number of OLS
and Box-Cox specification models were estimated. After comparison of results
the preferred model was chosen on the basis of three factors. First, the
correlation coefficient between actual and predicted levels of depreciation.
Second, comparing statistical differences between models based on the
respective mean absolute percentage error (MAPE) as suggested by Dumler et
al. (2000) and Gençay and Yang (1996). For the models examined above the
MAPEs were calculated based on the absolute difference between observed
and predicted percentage depreciation.5 Third, ease of interpretation of results
of the parameter estimates, with the OLS specification providing more readily
interpretable results.
The preferred model (equation 1) builds on the equation used in Wilson
and Davis (1998). The model, estimated via OLS, includes two notable
features in comparison to Wilson and Davies (1998). Specifically, the age of
the tractor is captured by the natural logarithm of the year of life and also a
variable (Y1) is included to account for the observed high level of depreciation
that occurs in the first year of a tractor's life.
Dep=α0+α1Y1+β 1Lnyr+β 2HP+β 3HRS+δ1JD+δ2MF+δ3NH+δ4JCB+δ5O+e (1)

Where:
α0, α1, βk and δj (k=1,…3, j=1,…5) are coefficients to be estimated.
Dep the percentage depreciation
Y1 1 if tractor is in the first year of life, 0 otherwise
Lnyr natural logarithm of the year of life of tractor
HP the manufacturers rated horsepower of tractor
HRS the number of hours the tractor has worked
JD 1 if the tractor is a John Deere (JD), 0 otherwise
MF 1 if the tractor is a Massey-Ferguson (MF), 0 otherwise
NH 1 if the tractor is a Ford/New Holland (NH), 0 otherwise
JCB 1 if the tractor is a JCB, 0 otherwise
O 0 if the tractor is a Case, JD, MF, NH or JCB, 1 otherwise
e disturbance term with usual properties
5. The absolute percentage error (APE) is calculated here by APE= |(O-P)/O| *100 where O is
the observed percentage depreciation and P is the predicted percentage depreciation. Full
details of results of the models are available from the corresponding author upon request.
9
Journal of Farm Management Vol.12 No.1 July 2004

The results of the above model are given below in Table 3

Table 3. Parameter Estimates of Depreciation Model.

Parameter Estimate t statistic

Intercept 2.146 1.54
Y1 12.372 6.90 *
Lnyr 19.943 10.10 *
HP 0.068 10.83 *
HRS 0.00210 14.38 *
JD -0.562 -0.78
MF 6.188 7.95 *
NH 6.648 9.52 *
JCB -1.798 -1.67
O 2.541 2.88 *
R2 0.842
γ 0.918
* Indicates significance at the 99% level, γ=correlation coefficient between observed and
predicted percentage depreciation.

The parameter estimates of the above model can be interpreted directly.

As an example, for a 100 horse-power Case tractor that is in the first year of
life and without undertaking any work depreciation is estimated by the
intercept plus the coefficient on Y1 plus the horse-power rating multiplied by
the estimated coefficient; (2.146+12.372+(0.68*100)) = 21.32 per cent. Once
beyond the first year of life the coefficient on Y1 is no longer included in the
calculation, but the coefficient on the Lnyr will be accounted for. As Lnyr
increases by a value of one (approximately equivalent to an increase from 0 to
2.7 years of life (an age of 1.7 years) or from 2.7 to 4.7 years of life)
depreciation will increase by 19.94 per cent. Every increase in horse-power
rating by ten increases depreciation by 0.68 percent, and for every increase in
hours worked by 1000, depreciation increases by 2.1 percent. Thus as years of
life, horse-power rating and hours worked increase depreciation increases and
this reinforces the findings from other studies (e.g. Cross and Perry, 1995).
With more detailed and historical information about manufacturer discount
rates it would have been possible to draw firmer conclusions about the
differences in depreciation across tractor manufacturers. However, on the basis
of the calculations and assumptions regarding the manufacturer discounts as
detailed above, John Deere and JCB do not differ significantly in percentage
depreciation from Case. By contrast tractors of Massey-Ferguson, Ford/New
Holland and "other" manufacturers have respective depreciation of 6.19, 6.65
and 2.54 per cent greater than Case. The caveat to these results being based
upon the discount assumptions and calculations is of crucial importance and is
an area where further research is required in order to provide a more accurate
account of the impact of manufacturer on depreciation. The model explains
84.2 per cent of the variation in depreciation, which compares favourably with
other studies (e.g. R2 = 0.74, Wilson and Davis, 1998).

10
Estimating Tractor Depreciation… .Management Accounting P. Wilson et al.

4. Interpretation and Comparability

The following figures provide a graphical representation of estimated
depreciation in real terms using the above results and comparing these with
standard depreciation estimates. Figure 1 provides the predicted cumulative,
annual average and annual marginal depreciation for a representative tractor
over the first ten years of its life. This tractor has depreciated by
approximately 50% at an age of four and thereafter depreciates at a slower rate
with annual marginal depreciation in the region of five to three percent (of
new price). Figure 2 compares the cumulative depreciation on the basis of the
above results with cumulative depreciation as calculated from two standard
sources: Farm Business Survey (FBS) standard assumed rate of annual tractor
depreciation of 17% (on a diminishing balance method) and age-dependent
depreciation from Nix (2001). Note that the depreciation as calculated from
the FBS assumed rate and Nix do not take into account tractor horse-power
rating, hours worked or manufacturer. In the example in Figure 2, FBS
depreciation rates are lower than those estimated by the model until the age of
three, at which point these estimates coincide, whilst from the age of four
onwards the FBS estimates are greater than those produced from the model.
Depreciation estimated following Nix is always greater than the estimated
depreciation from the model. As a further note to compare these three
estimates the MAPE from FBS and Nix estimates are 24.77 and 19.76
respectively, compared with the MAPE of 12.37 from the model, each being

Figure 1. Estimated Cumulative, Average and Marginal Depreciation.

Example of 130HP Case Tractor undertaking 750 Hours Work for Year.

11
Journal of Farm Management Vol.12 No.1 July 2004

estimated over 840 observations of tractors up to ten years of age6. The MAPE
of the model is significantly lower than MAPEs produced from either Nix or
FBS estimates. For interest the MAPEs as calculated by Dumler et al. (2000)
range from 31.4 for the Cross and Perry (1995) Box-Cox model to 82.9 for the
general depreciation system method7 in their US study for tractors purchased
over 1986-1995.

Figure 2. Estimated Cumulative Depreciation Compared with FBS Accounting

and Nix Depreciation: Example of 130HP Case Tractor Undertaking 750
Hours Work Per Year.

Figure 3 indicates how the hours worked influences the pattern of

depreciation from the results of the model. Substantial differences occur in the
cumulative depreciation as the tractor ages. As noted above, the standard
estimates provided in Nix and used in the FBS fail to account for this level of
detail in estimating depreciation.
Standard depreciation rates as given in Nix and used by the FBS provide
readily applicable methods for calculating depreciation as a function of the age
of the tractor alone. The patterns of depreciation produced by the three
methods considered in this section differ, but do follow a common trend of
high depreciation in the early years of a tractor's life, with marginal
depreciation declining as age increases. The advantage of using the results of
6. The MAPEs have been estimated over tractors up to ten years of age as Nix does not
specify a depreciation rate for tractors of more than ten years of age.
7. The general depreciation system allows most of the depreciation to be accounted in the
earliest years of a tractor’s life for tax purposes.
12
Estimating Tractor Depreciation… .Management Accounting P. Wilson et al.

Figure 3. Depreciation According to Hours Worked: 130HP Case Tractor.

the model as presented here is that a more accurate representation of

depreciation can be obtained than would be possible through the use of
standard estimates alone. It is of course recognised that this increased accuracy
of depreciation requires a greater knowledge of the tractor prior to any
calculation or prediction of its depreciation or future value. However, the ease
of interpretation of the results of the OLS model facilitates this calculation.
Note also that the calculated depreciation above is real-terms depreciation. No
account has been taken of the inflationary impact on remaining values.
To enhance the use of the estimated model results in Table 3, the
following tables provide estimated trade-in-values as a percentage of the
discounted new price. These estimated trade-in values are given for Case
tractors of varying horse-power undertaking 500, 750 and 1000 hours work
per annum in Tables 4, 5 and 6 respectively. Variation of trade-in values
according to make of tractor can be made by subtracting the relevant estimated
parameter in Table 3 (e.g. for MF subtract 6.188) from the trade-in values
given in Tables 4, 5 or 6. As an example of how to use the tables, for a Case
tractor undertaking 750 hours per annum the trade-in values are given in Table
5. From Table 5, a 150 horse-power tractor being sold aged 4 years is
estimated to have a trade-in value of 49.3% of the discounted new price.
Tables 4, 5 and 6 therefore provide a reference for estimating a wide range of
trade-in values according to age, hours worked and horse-power rating.

13
Journal of Farm Management Vol.12 No.1 July 2004

Table 4. Estimated trade-in value in real terms as a percentage of discounted

new price for Case tractors undertaking 500 hours of work per annum.
Age when sold
HP 0 1 2 3 4 5 6 7 8 9 10
50 82.1 79.6 70.4 63.7 58.2 53.5 49.3 45.6 42.2 39.1 36.1
75 80.4 77.9 68.7 62.0 56.5 51.8 47.6 43.9 40.5 37.4 34.4
100 78.7 76.2 67.0 60.3 54.8 50.1 45.9 42.2 38.8 35.7 32.7
125 77.0 74.5 65.3 58.6 53.1 48.4 44.2 40.5 37.1 34.0 31.0
150 75.3 72.8 63.6 56.9 51.4 46.7 42.5 38.8 35.4 32.3 29.3
175 73.6 71.1 61.9 55.2 49.7 45.0 40.8 37.1 33.7 30.6 27.6
200 71.9 69.4 60.2 53.5 48.0 43.3 39.1 35.4 32.0 28.9 25.9
250 68.5 66.0 56.8 50.1 44.6 39.9 35.7 32.0 28.6 25.5 22.5

Note: An age of 0 indicates that the tractor is in its first year of life and has undertaken no
hours of work. Total hours of work are given by the age multiplied by number of hours
undertaken per year (e.g. a tractor aged 1 when sold is assumed to have undertaken 500
hours). HP = horse power.

Table 5. Estimated trade-in value in real terms as a percentage of discounted

new price for Case tractors undertaking 750 hours of work per annum.
Age when sold
HP 0 1 2 3 4 5 6 7 8 9 10
50 82.1 79.1 69.4 62.1 56.1 50.8 46.2 42.0 38.0 34.4 30.9
75 80.4 77.4 67.7 60.4 54.4 49.1 44.5 40.3 36.3 32.7 29.2
100 78.7 75.7 66.0 58.7 52.7 47.4 42.8 38.6 34.6 31.0 27.5
125 77.0 74.0 64.3 57.0 51.0 45.7 41.1 36.9 32.9 29.3 25.8
150 75.3 72.3 62.6 55.3 49.3 44.0 39.4 35.2 31.2 27.6 24.1
175 73.6 70.6 60.9 53.6 47.6 42.3 37.7 33.5 29.5 25.9 22.4
200 71.9 68.9 59.2 51.9 45.9 40.6 36.0 31.8 27.8 24.2 20.7
250 68.5 65.5 55.8 48.5 42.5 37.2 32.6 28.4 24.4 20.8 17.3

Note: An age of 0 indicates that the tractor is in its first year of life and has undertaken no
hours of work. Total hours of work are given by the age multiplied by number of hours
undertaken per year (e.g. a tractor aged 1 when sold is assumed to have undertaken 750
hours). HP = horse power.

Table 6: Estimated trade-in-value in real terms as a percentage of discounted

new price for Case tractors undertaking 1000 hours work per annum
Age when sold.
HP 0 1 2 3 4 5 6 7 8 9 10
50 82.1 78.5 68.3 60.5 54.0 48.2 43.0 38.3 33.8 29.6 25.6
75 80.4 76.8 66.6 58.8 52.3 46.5 41.3 36.6 32.1 27.9 23.9
100 78.7 75.1 64.9 57.1 50.6 44.8 39.6 34.9 30.4 26.2 22.2
125 77.0 73.4 63.2 55.4 48.9 43.1 37.9 33.2 28.7 24.5 20.5
150 75.3 71.7 61.5 53.7 47.2 41.4 36.2 31.5 27.0 22.8 18.8
175 73.6 70.0 59.8 52.0 45.5 39.7 34.5 29.8 25.3 21.1 17.1
200 71.9 68.3 58.1 50.3 43.8 38.0 32.8 28.1 23.6 19.4 15.4
250 68.5 64.9 54.7 46.9 40.4 34.6 29.4 24.7 20.2 16.0 12.0

Note: An age of 0 indicates that the tractor is in its first year of life and has under taken no
hours of work. Total hours of work are given by the age multiplied by number of hours
undertaken per year (e.g. a tractor aged 1 when sold is assumed to have undertaken 1000
hours). HP = horse power.
14
Estimating Tractor Depreciation… .Management Accounting P. Wilson et al.

5. Discussion and Conclusion

The results of the preferred model have been shown to provide a significantly
more accurate representation of depreciation than standard methods for
calculating depreciation, albeit that this is at the expense of a need for more
information on each individual tractor. The main caveat to this approach to
estimating depreciation lies in the need for more accurate information on the
discounts offered by manufacturers. It would be helpful for any future studies
to develop a time series of discounts offered by manufacturers. Moreover, as
the results of this study indicate, approximately 16% of the variation in
depreciation remains unexplained by the preferred model. Developing a
method for accounting for the care and condition of individual tractors, along
with information on specialist or additional equipment would help to provide a
better representation of depreciation.

Acknowledgements
The authors thank two anonymous referees for their detailed and
constructive comments.

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 Journal of Farm Management Vol.12 No.1 July 2004

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Biographical Notes
Paul Wilson is Lecturer in Management in the Division of Agricultural
and Environmental Sciences, School of Biosciences, University of
Nottingham, Sutton Bonington Campus, LE12 5RD. Email
paul.wilson@nottingham.ac.uk.

Christopher Tolley is a graduate of the University of Nottingham and

partner in P.B. Tolley and Son, Leicestershire.

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