The truth is that many of you know that you can never get as much money as you think you should when it comes to the price of your car. Every time the owner is changed, every next year that has gone by, every distance traveled and every other service performed to cause the price of your vehicle to fall.
What about new cars? The moment you leave the parking lot of the car salon, its price decreases by almost 20 percent. That number grows to 60 percent in the next three years. This is why you should know how much that price decreased, or as we call it – depreciation.
What is a car depreciation calculator?
A car depreciation calculator provides you with a quick and easy calculation of car depreciation. It’s simply made and can be used by anyone.
For the calculation of depreciation, one of the most important elements is the basis on which the appropriate depreciation rate is applied. The basis for the calculation of depreciation is the purchase value less the residual (residual) value.
The residual value represents the estimated amount that you would receive today if you sell a car. This is when we are assuming that the car will be in a good condition until the end of its useful life.
The estimated value is determined on the day of the acquisition of the car. If the residual value is insignificant, it is not taken into account when determining the basis for calculating depreciation.
Formula
CD = Purchase Value * (1 – Rate of Depreciation) ^ No. of years
Here is an example to help you understand it better:
In the table, you can find all the car information you will need to calculate its depreciation.
| Rate of depreciation | 0.15 |
| Purchase value | $30,000 |
| No. of years used | 4 |
When you put all data in the formula you will get:
CD = 30,000 * (1 –0.15) ^ 4
CD = 30,000 * 0.52200625
CD = 15,660.1875
Do you need anything else to calculate it?
To calculate car depreciation you will need to know the base of depreciation. Accounting depreciation is calculated in the following cases:
- At the end of the business year and before the preparation of financial statements;
- Preparation of extraordinary financial reports in status changes (merger, division, and separation) and sale of a legal entity;
- Compilation of extraordinary financial reports during the opening and closing of bankruptcy;
- For the car disposed of during the year ending with the month or day on which the car was disposed.
If you want the calculation of depreciation to be performed correctly, it is necessary to determine the following things by accounting policies (accounting act):
- Depreciation basis;
- The useful life of the car – depreciation rates;
- The method of depreciation calculation to be applied (proportional, degressive, or functional);
- The manner of reviewing the useful life of the car on the day of compiling the financial statements;
- Start of depreciation calculation (from the day of purchase or the following month).
What affects the price?
What most and decisively affects the material value of the car are several things: its brand, year of production, the distance it crossed, engine condition and its power, as well as the condition in general, fuel, and whether it was crashed.
Each of these items is not negligible and is important for price formation. The car brand and its impact on price may seem absurd to you, however, there are some beliefs that certain car manufacturers make longer-lasting vehicles than others, which is especially important when selling used vehicles.
What hasn’t been given as much attention before is engine power. The power of the engine affects the registration price, which can vary for larger engines and double compared to those classic smaller city cars, and customers generally pay attention to that as well.
Certainly, the decisive factors for forming the price of a used car will be its age and mileage, as well as the mutual relationship between the two. However, none of the factors involved in shaping the price will be negligible, so both buyers and sellers are obliged to pay attention to as many details as possible so that the trade is done to mutual satisfaction.
The importance of “useful life”
The amount of the depreciation rate and the useful life of the car are not determined by the regulation because it is exclusively a normative regulation of a legal entity. Reviewing the useful life of the car is an important procedure for realistically determining the amount of depreciation and evenly debiting operating expenses during the use of the car.
In determining the useful life of the car, all of the following factors should be considered:
- Expected utilization of funds. Utilization is estimated based on expected car capacity or physical effects.
- Expected physical wear and tear depending on business factors, such as the number of shifts in which the car will be used, the repair and maintenance program, and the care and maintenance of the car until it is used.
- Technical or commercial obsolescence resulting from changes or improvements in production or due to changes in market demand for a product or service provided by that means.
- Legal or similar restrictions on the use of the car, such as the expiration of the lease term.
The useful life should be reviewed in the following circumstances:
- Inadequate assessment in the previous period;
- During the year, additional investments were made in the car, which extended the useful life;
- During the year there was a depreciation (physical damage, malfunction, etc.) of funds, which shortened the useful life;
- Replacement of significant spare parts;
- In accordance with the new business policy, the company plans to dispose of funds in the near future;
- When technological or market changes have taken place.
The useful life of the car acquired under a finance lease is determined on the basis of the lease term, in most cases, or the life of the cart if the life of the car is shorter than the lease term. It should be reviewed at least once a year (at the end of each financial year) and the depreciation rate should be adjusted as needed.