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

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