Depreciation is considered a non-cash expense. When business assets are used over time, they are written off on the income statement and the asset value is then reduced on the balance sheet. This is also the case with motor vehicles such as cars, trucks, and trailers. The most popular method used to calculate depreciation expense for motor vehicles uses the cost of the vehicle, the useful life and the salvage value to determine the annual depreciation expense deducted from both net income and assets.
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Obtain the cost of the motor vehicle. This is the price you paid for the vehicle, not the value. For instance, if you purchased truck that's worth £65,000, and only paid £33,150, the cost of the truck for depreciation purposes is £33,150 not £65,000.
Determine the useful life of the vehicle. The useful life is the number of years the asset provides value. You can ask the manufacturer of the vehicle or look up suggestions by the IRS in Publication 946. According to the IRS tables, motor vehicles have a useful life of between three and 15 years. Assume the vehicle has a useful life of 10 years.
Request an estimate for the salvage value. The salvage value is the value of the vehicle at the end of the useful life. You can request an estimate from a scrap yard or dealer. Assume the salvage value is £650.
Calculate the depreciation expense. Subtract the salvage value from the cost of the motor vehicle and then divide by the useful life. The calculation is £33,150 minus £650 divided by 10 or £3,250.
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