Elbanna, E., AI -Gaadi, K. (2002). NEW MACHINERY OWNERSHIP COSTING PROCEDURE. Journal of Soil Sciences and Agricultural Engineering, 27(11), 7713-7728. doi: 10.21608/jssae.2002.255578
E.B. Elbanna; K. A. AI -Gaadi. "NEW MACHINERY OWNERSHIP COSTING PROCEDURE". Journal of Soil Sciences and Agricultural Engineering, 27, 11, 2002, 7713-7728. doi: 10.21608/jssae.2002.255578
Elbanna, E., AI -Gaadi, K. (2002). 'NEW MACHINERY OWNERSHIP COSTING PROCEDURE', Journal of Soil Sciences and Agricultural Engineering, 27(11), pp. 7713-7728. doi: 10.21608/jssae.2002.255578
Elbanna, E., AI -Gaadi, K. NEW MACHINERY OWNERSHIP COSTING PROCEDURE. Journal of Soil Sciences and Agricultural Engineering, 2002; 27(11): 7713-7728. doi: 10.21608/jssae.2002.255578
Fac. of Agric. And Veter., King Saud Unlv., AL·Qasslm Saudi Arabia
Abstract
A quick conventional estimate of machinery operating costs is obtained by averaging the annual costs over the full period of ownership. This ignores the fact that depreciation is .higher during the first year of ownership than in subsequent years, whilst repair and maintenance charges increase with age of the machine. This conventional estimating procedure provides a useful guide to average trends. The correct evaluation of annual costs is particularly important ascertain the economic life of a machine. For solutions to more complex machinery management problems, the annual machinery costs are calculated using the actual cash flows, which occur each year. The calculation of annual costs of machine ownership is based on three types of cash flows: (a) capital cost repayable by equal mortgage Installments, (b) recurring annual repair and insurance charges and (c) income from selling the machine.
The net present value of an investment in farm machinery may be calculated using a series of steps. First and most important, the cash flow generated by the investment must be estimated for each year. Second, the cash flow is discounted by a present value factor. Third, the discounted cash flow is assumed over the number of years analyzed. The discounted annual Interest charge paid on the borrowed capital is affected by the amount of the loan and its period. For a given standard tax rate. the tax relief is calculated for repair and Insurance costs and annual capital allowances deducting the actual balancing charge. This study is aimed to give an accurate estimate of the annual costs of a machine and to provide a comparison of the present annual cost of machine ownership with and without the effects of tax allowance and tax relief.
The present annual cost of machine ownership is substantially altered by tax considerations. Allowing 30% tax rate in calculation of machine costs reduces tractor present annual cost from a current value (CV) of 2916 to a CV of 2032 (30% reduction) compared to a CV of 2440 calculated using the conventional method. The present approach yields an intermediate cost figure within the range spanned by the present annual ownership costs with and without tax.
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