Cars Market Depreciating

[R Photon]

Cars are not an investment, so they can't really depreciate. If you buy one to earn an income then depreciation is a tax deduction but technically only an asset can depreciate. Thats the way I understand it anyway.

In accounting terms, a motor vehicle is classed as an asset because it has future economic benefit.

It would be said that its economic benefit is getting products to customers, employees to meetings etc. the list could go on for ever.

A motor vehicle is not a monetary investment but it is an economic investment i.e you will not explicitly make money off it but you will gain implicit monetary value through the use of it.

In essence, it is an asset and it does depreciate.

Asleep yet?

 

[Not_An_Abba_Fan]

My understanding of an asset is something that earns passive income. If it requires input from you to earn income than it is not really an asset.

Using the vehicle to earn income, doesn't it then become a tool? Like I said, for tax purposes it depreciates but as an actual asset, I don't believe it is.

 

[R Photon]

My understanding of an asset is something that earns passive income. If it requires input from you to earn income than it is not really an asset.

Using the vehicle to earn income, doesn't it then become a tool? Like I said, for tax purposes it depreciates but as an actual asset, I don't believe it is.

Let me begin by firstly saying that I have no 'real' world experience with depreciation of assets.

An asset can earn income but that's not the definition of an asset.

Accounting Dictionary - Over 1,000 Accounting Terms Defined

The 'input' would be classed as maintenance/petrol (expenses) which is also an asset because it provides future economic benefit to the motor vehicle and therefore the business.

Therefore, the money you are spending on it wouldn't come out of net profit, but expenses which the business budgets for.

I know NOTHING about tax. So i can't say anything about depreciation through tax.

What I do know is that a motor vehicle will depreciate and it needs to be calculated and recorded each year to ensure that the businesses books are showing true net profit.

A common approach to depreciating a motor vehicle is known as the straight-line method:

Total cost of the asset - residual value (cost estimated at end of useful life)
no. of years of useful life

The sum of that calculation is what the business records as depreciation each year.

That's enough crap for now, I do realise this may be a little off topic but I'm home on a Saturday night studying for an Accounting exam, so I'm in the mood.

 

[homer simpson]

i just wanted to know why some model cars depreciate quicker than others and why dont some cars last as long as they used to

 

[R Photon]

haha well this is accounting 101 so get out.

 

[180sc]

I would think that is just plain obvious.

 

[Reaper]

What Do Yous Think About Cars Depreciating So Quick

cars seem to depreciate quicker than they used to

(More useless **** deleted - If you wanna read it lookup!)

Depends if I'm a buyer or a seller. As a buyer it's great. As a seller it sucks.

Reaper

 

[Shounak]

Let me begin by firstly saying that I have no 'real' world experience with depreciation of assets.

An asset can earn income but that's not the definition of an asset.

Accounting Dictionary - Over 1,000 Accounting Terms Defined

The 'input' would be classed as maintenance/petrol (expenses) which is also an asset because it provides future economic benefit to the motor vehicle and therefore the business.

Therefore, the money you are spending on it wouldn't come out of net profit, but expenses which the business budgets for.

I know NOTHING about tax. So i can't say anything about depreciation through tax.

What I do know is that a motor vehicle will depreciate and it needs to be calculated and recorded each year to ensure that the businesses books are showing true net profit.

A common approach to depreciating a motor vehicle is known as the straight-line method:

Total cost of the asset - residual value (cost estimated at end of useful life)
no. of years of useful life

The sum of that calculation is what the business records as depreciation each year.

That's enough crap for now, I do realise this may be a little off topic but I'm home on a Saturday night studying for an Accounting exam, so I'm in the mood.

Depreciation is not when a car that you bought for $20,000 is worth $15,000 after 2 years. That's devaluation.

Depreciation is a way to measure the use of an asset, by allocating it an expense. With the afforementioned car, you would say that the depreciation would be $2,500 per annum.

The economic use of an asset need not have anything to do with its sale price though. So if you sold the car for $18,000, it has depreciated by $5,000 but you've made a gain of $2000 (which is subject to capital gains tax).

You can vary your level of depreciation for an asset. If you depreciate it too heavily (to get tax deductions from the expense), you'll be slugged with capital gains tax and if you depreciate it too lightly, you'll miss out on deductions, but can claim a capital loss.

You could have car depreciating at 20% at a year, yet after 5 years the market value can still be 90% of the purchase price.

I'm a finance major at Uni and have done upto an intemediary level of accounting. I didn't want to go too advanced (audit, etc) because it's just too damn boring.

 

[Not_An_Abba_Fan]

Thats the thing with tax, for tax purposes it can be depreciated, making it an asset, but I won't label something an asset unless it earns me passive income. Anything I have to do to or with the item to earn an income makes it a liability.

 

[Shounak]

Thats the thing with tax, for tax purposes it can be depreciated, making it an asset, but I won't label something an asset unless it earns me passive income. Anything I have to do to or with the item to earn an income makes it a liability.

So your home is a liability as you have to service the repayments (interest, utilities, rates, taxes).. Your primary domicile will (in most cases), cost a lot and not earn you any passive income.