1. What is Depreciation Allowance?

Depreciation allowance is the annual amount that a vehicle loses in value over time. It represents the wear and tear, deterioration, or obsolescence of the vehicle. This straight-line method spreads the cost evenly over the vehicle's useful life.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• \( Cost \) — Original purchase price of the vehicle
• \( Salvage \) — Estimated residual value at end of useful life
• \( Life \) — Expected useful life in years

Explanation: The formula calculates equal annual depreciation amounts by subtracting the salvage value from the cost and dividing by the number of years of useful life.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for financial reporting, tax deductions, insurance purposes, and business expense tracking. It helps in determining the true cost of vehicle ownership over time.

4. Using the Calculator

Tips: Enter the vehicle's original purchase price, estimated salvage value (what it will be worth at end of life), and expected useful life in years. All values must be positive numbers with salvage value less than cost.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between straight-line and other depreciation methods?
A: Straight-line is simplest with equal annual amounts. Other methods (declining balance, sum-of-years) front-load depreciation.

Q2: How do I determine salvage value?
A: Estimate based on similar vehicles' resale value after same period, typically 10-20% of original cost for cars.

Q3: What's typical useful life for vehicles?
A: Cars: 5-8 years, Trucks: 3-6 years, but varies by usage and maintenance. Tax authorities often specify limits.

Q4: Can I depreciate below salvage value?
A: No, depreciation stops when book value equals salvage value.

Q5: How does this apply to leased vehicles?
A: Lessees typically can't claim depreciation; it's claimed by the lessor who owns the vehicle.