How to calculate depreciation on Vehicles?

A descriptive step by step guide on calculating your vehicles depreciation rate new vehicles and used old vehicles. Used car sales for a good price.

QUESTION:

How to calculate depreciation on Vehicles?

Example:
Depreciation as follows: On delivery vehicles: 11% per annum on the reducing balance method. Note that new delivery vehicles costing R10 995.83 (excl VAT) and R68 679.97 (excl VAT) were purchased on the 1st and 30th April 20.6 respectively. This has been properly recorded. In addition, a delivery vehicle originally bought on 30 Sept 20.1 for R21 406.35 (incl VAT), was sold on 31 Aug 20.5 for R13 807.05 (incl VAT) on credit to Gord Motors. This transaction was not recorded. Note: All delivery vehicles are non-passenger vehicles.

Amounts given as at 30 April 20.6:
Delivery Vehicles R181 175.80 (Dr)
Acc Dep: Motor Vehicles R11 165 (Cr)

Calculate depreciation for the year ending 30 April 20.6

Vehicle depreciation calculator south africa

ANSWER:

The first step is to understand what the ‘reducing balance method means – the reducing balance method means that depreciation must be calculated on “Carrying value”. Therefore every time you calculate the depreciation you subtract it from the cost price before working out the next years depreciation.

There are a few different vehicles that you need to work the depreciation out on in the above question.

1. Depreciation on the New Vehicle:
Vehicle bought on 1 April 20.6 (during the financial year) therefore 1 month of depreciation.

R10 995.83 x 11% x 1/12 = R100.80

2. Depreciation on Vehicle sold:
Vehicle bought on 30 Sept 20.1 and sold on 31 August 20.05 – therefore 3 years 11 months in total. Bought for R21 406.35 incl VAT therefore use the VAT exclusive amount and then calculate the depreciation. R21 406.35 x 100 / 114 = R18 777.50

30 Sept 20.1 – 30 April 20.2 = 7 months –> R18 777.50 x 11% x 7/12 = R1204.89
01 May 20.2 – 30 April 20.3 = 1 year –> R18 777.50 – R1204.89 = R17 572.61 x 11% = R1932.99
01 May 20.3 – 30 April 20.4 = 1 year –> R17 572.61 – R1933.99 = R15 638.62 x 11% = R1720.36
01 May 20.4 – 30 April 20.5 = 1 year –> R15 639.40 – R1720.33 = R13 918.26 x 11% = R1531.12

Total Accumulated Depreciation on 1 May 20.5: 1204.89 + 1932.99 + 1720.36 + 1531.12 = 6389.36

01 May 20.5 – 31 Aug 20.5 = 4 months –> R13 919.07 – R1531.10 = R12 387.14 x 11% x 4/12 = R454.23

Depreciation for year ending 30 April 20.6 = R454.23
Total Accumulated Depreciation: 1204.89 + 1932.99 + 1720.36 + 1531.12 + 454.23 = 6843.59

3. Depreciation on Old Vehicles (those before new acquisition and remaining after sale): Therefore take the total and subtract new vehicles as well as the vehicle that was sold. You will also be required to subtract the difference in the Accumulated Depreciation due to the sale of a vehicle.

Total for Vehicles (given) R181 175.80 – R10 995.83 (new) – R68 679.97 (new) – R18 777.50 (sold) = R82 722.50
Total Accumulated Depreciation (given) R11 165.00 – R6389.36 [calculated in point 2 above]

Therefore: R82 722.50 – R6389.36 = R76 333.14

Therefore: R76 333.14 x 11% = R8574.15

Journals:
Dr Depreciation [100.80 + 454.23 + 8574.15] R9129.18
Cr Accumulated Depreciation R9129.18

Dr Accumulated Depreciation [from point 2] R6843.59
Cr Asset Disposal R6843.59