Truck Depreciation: A Comprehensive Guide for Vietnamese Businesses

Truck depreciation is a crucial aspect of financial management and accounting for any transportation business or company that utilizes trucks. A clear understanding of truck depreciation rates not only ensures compliance with legal regulations but also optimizes costs, improves business efficiency, and facilitates informed investment decisions. This article from Xe Tải Mỹ Đình provides a comprehensive guide to truck depreciation, covering calculation methods, influencing factors, and essential considerations for effective implementation within your business.

Truck depreciation is the process of valuing and allocating the value of a truck over its useful life due to wear and tear (Source: Collected)

What is Truck Depreciation?

Truck depreciation, similar to car depreciation, is the process of valuing and allocating the original cost of a truck over its useful life. As a fixed asset, trucks experience physical wear and tear, as well as obsolescence (due to technological advancements) during their operation. Depreciation allows businesses to recognize the cost of using this asset as a legitimate business expense, while accurately reflecting the truck’s remaining value on the accounting books.

For transportation businesses, especially those with large fleets, the truck depreciation rate directly impacts profitability and cash flow. Depreciation is not only an accounting expense but also a vital source of capital accumulated for future reinvestment and fleet upgrades.

Common Methods for Calculating Truck Depreciation

There are several methods for calculating truck depreciation, but the most common are the straight-line method (linear depreciation) and the declining balance method.

1. Straight-Line Depreciation Method

This is the simplest and most widely used method. According to this method, the annual depreciation expense is constant throughout the truck’s useful life.

Formula for calculating truck depreciation using the straight-line method:

Annual Depreciation Expense = (Truck Original Cost – Estimated Salvage Value) / Useful Life

Where:

Truck Original Cost: Represents the total expenses incurred by the business to acquire the truck in a ready-to-use condition (including purchase price, taxes, registration fees, transportation costs, installation, test runs, etc.).
Estimated Salvage Value: Is the estimated value recoverable when the truck reaches the end of its useful life and is disposed of (usually very small or zero).
Useful Life: Is the period during which the business anticipates using the truck for its business operations. According to current regulations, the useful life of a truck is typically between 6 and 10 years.

Example:

A business purchases a new truck with an original cost of VND 1.5 billion. The business estimates the truck’s useful life to be 8 years and its estimated salvage value to be VND 100 million.

Annual Depreciation Expense = (VND 1,500,000,000 – VND 100,000,000) / 8 years = VND 175,000,000/year

New trucks and used trucks have different depreciation methods, the straight-line method is often applied to new trucks (Source: Collected)

2. Declining Balance Depreciation Method

This method allows the business to deduct a larger depreciation expense in the initial years of use and gradually decrease it in subsequent years. This method is suitable for trucks that typically depreciate faster in the early stages.

Formula for calculating truck depreciation using the declining balance method:

Annual Depreciation Expense = Truck Book Value at the Beginning of the Year x Accelerated Depreciation Rate

Accelerated Depreciation Rate = (1 / Useful Life) x Adjustment Factor

The adjustment factor is usually set from 1 to 2, depending on the company’s depreciation policy and asset characteristics.

Example:

Using the previous example, assume the business applies the declining balance depreciation method with an adjustment factor of 2.

Accelerated Depreciation Rate = (1 / 8 years) x 2 = 25%
Year 1: Depreciation Expense = VND 1,500,000,000 x 25% = VND 375,000,000
Year 2: Book Value at the beginning of year 2 = VND 1,500,000,000 – VND 375,000,000 = VND 1,125,000,000. Depreciation Expense = VND 1,125,000,000 x 25% = VND 281,250,000
… and so on for subsequent years.

Truck Depreciation Timeframe for Businesses

The truck depreciation timeframe is a critical factor directly influencing the annual truck depreciation rate. According to the Ministry of Finance’s Circular 45/2013/TT-BTC, the depreciation timeframe for transport vehicles and specialized vehicles ranges from 6 to 10 years. Businesses should determine an appropriate depreciation timeframe based on the vehicle type, intended use, and their own depreciation policies.

How to determine the depreciation timeframe for used trucks:

For used trucks, the depreciation timeframe can be determined using the following formula:

Used Truck Depreciation Timeframe = (Fair Value of Used Truck / Selling Price of New Truck of the Same Type) x Depreciation Timeframe of New Truck of the Same Type

Example:

A business purchases a used truck with a fair value of VND 800 million. The market price for a new truck of the same type is VND 1.6 billion, and the depreciation timeframe for the new truck is 8 years.

Used Truck Depreciation Timeframe = (VND 800,000,000 / VND 1,600,000,000) x 8 years = 4 years

Truck Depreciation Based on Years of Use

The value of a truck decreases over time. The rate of depreciation is generally higher in the initial years and slows down later on. Below is an estimated table of the remaining value of a truck based on its years of use:

Truck Years of Use	Truck Value (%)
1 year	85 – 90
1 – 3 years	65 – 75
3 – 6 years	45 – 55
6 – 10 years	25 – 35
Over 10 years	15 – 25

Note: The table above is for reference only; the actual depreciation rate may vary depending on various factors such as vehicle type, brand, usage level, maintenance conditions, and the used truck market.

Depreciation of High-Value Trucks

For trucks with high values, especially specialized trucks and container tractors, depreciation calculations require greater attention to ensure compliance with tax and accounting regulations. Currently, there are no specific regulations limiting the value of trucks for depreciation purposes, unlike passenger cars with fewer than 9 seats. Therefore, businesses can depreciate the entire original cost of the truck in accordance with regulations.

Calculating depreciation for high-value trucks requires compliance with current accounting and tax regulations (Source: Collected)

However, businesses should be mindful of the regulations regarding deductible expenses when calculating corporate income tax. Truck depreciation expenses must be directly related to the company’s business operations and supported by complete and valid invoices and documentation.

Factors Affecting Truck Depreciation Rates

The truck depreciation rate not only depends on the usage time but is also influenced by several other factors:

Years of Use: The most important factor; the longer the truck is used, the greater the depreciation.
Truck Type and Brand: Different truck models and brands have different depreciation rates. Trucks from reputable brands with good quality tend to hold their value better.
Truck Condition: Well-maintained trucks with fewer breakdowns will have a lower depreciation rate compared to trucks that are degraded and have numerous breakdowns.
Usage Level: Trucks operating at high frequency and intensity will wear out faster and have a higher depreciation rate.
Used Truck Market: The used truck market price also affects the depreciation rate. When the used car market is active and used car prices are high, the depreciation rate may decrease.
Technology: Advancements in truck technology can also increase the depreciation rate of older trucks due to obsolescence.

Optimizing Truck Depreciation for Your Business

To optimize the truck depreciation rate, businesses should:

Choose the appropriate depreciation method: Consider the company’s operating characteristics and depreciation policies to select either the straight-line or declining balance method.
Determine a reasonable useful life: Based on experience, usage plans, and the average lifespan of trucks, determine an appropriate depreciation timeframe.
Manage and maintain trucks effectively: Regular maintenance and timely repairs help extend the truck’s lifespan and slow down the depreciation rate.
Periodically monitor and evaluate the truck’s value: Reassess the truck’s value over time to make appropriate depreciation adjustments.
Develop a fleet reinvestment plan: Utilize accumulated depreciation capital to reinvest and upgrade the fleet, ensuring operational efficiency and competitiveness.

Conclusion

Understanding and effectively managing the truck depreciation rate is a key element in the financial management of transportation businesses. By applying the correct depreciation calculation method, determining a reasonable useful life, and optimizing influencing factors, businesses can control costs, improve business efficiency, and ensure sustainable development.

If you have any questions about truck depreciation or need advice on suitable truck models for your business needs, please contact Xe Tải Mỹ Đình for the best support. We are always ready to accompany your business to success.

Xe Tải Mỹ Đình Contact Information: