What is a depreciation vehicle and how to calculate it?
Car depreciation – what is it and why you need it
Car depreciation is a procedure for writing off its value, taking into account the degree of wear. The main goal is to write off the vehicle in parts during the entire operational period.
Depreciation write-off is the cash equivalent of a vehicle. Considered a company’s cost. Depreciation calculations are relevant not only for enterprises purchasing a working vehicle fleet, but also when hiring employees with their own cars. This expenses type must be recorded in tax accounting.
It is also relevant for: assessing the real auto price for insurance, operating a personal vehicle for work needs, leasing a vehicle.
How to calculate
Declining balance method
The maximum deductions are at the initial stage of using the auto. The accelerated method, one of the most practical, since the auto productivity is greatest at the initial operation stage. Formula: residual price at the start of operation x wear rate x boost factor/100%.
Uniform deductions throughout the operating auto life, in strictly equal amounts. This is a simple, convenient calculation method that allows you to evenly distribute accumulated depreciation. Minus: not suitable for those who want to pay for a large percentage of wear and tear at the first stage of auto operation, will not allow taking into account instant repairs in case of car obsolescence. Formula: average annual cost of fixed assets x depreciation rate/100%.
According to the useful life
Accelerated method with maximum deductions at the initial car operation stage. Formula: initial vehicle cost x rate.
How to determine the depreciation rate? Strictly based on the operation duration. It is calculated as a percentage of the initial vehicle cost for every 1000 km of run.
Important. The company has the right to choose any of the above calculation methods. But take into account one point – after putting the machine into operation, it will be impossible to choose another calculation method.
What type of calculation is suitable for a passenger car? The linear method is more relevant. The original car price must correspond to the figure indicated in the documents.
What type of calculation is right for a truck? In view of intensive wear and tear, it is considered more objective to calculate it by car mileage.