The meaning of depreciation and why it occurs

1.What is depreciation and why do we account for it?Depreciation is the continous monthly devaluing of movable assets, allowed by SARS to enable concerns to cipher existent values on such assets. All movable assets depreciate in value over clip, as they are used in twenty-four hours to twenty-four hours concern and vehicles in peculiar lose value as they aquire Kms and acquire older The depreciation procedure allows concerns to let for replacing of such movable assets as good as to enable such concerns to sell off such assets when new 1s are neccesary 2.Do two vehicles of the same brand with similar characteristics deprectiate at the same rate. Why is this so? Vehicles of the same brand, could deprecate at different rates due to different applications eg a driver of one vehicle may make higher milage than the following. The status of the vehicle is besides influenced by its application ( what it is used for ) every bit good as driving manners service intervals, accidents etc. 3.What factors, exept the brand of the vehicle, act upon the monetary value of a second-hand auto? Used vehicle values are influenced by a big assortment of factors, of which supply and demand most surely have the biggest influence. Other factors which are of import to observe are: 3.1 General status of the vehicle 3.2 Cost of fixs neccesary to market the used vehicle efficaciously, eg Tyre wear, etc. 3.3 Mileage 3.4 Age or Year theoretical account 4. If a newer theoretical account of a auto comes out, how does this impact the monetary value of the old theoretical account and the second-hand market? A new theoretical account does non neccesarily act upon the monetary value of a used theoretical account negatively.This procedure is driven entirely by supply and demand. There are many cases of used vehicles really appreciating after a new theoretical account is launched. Major conrtibuting factors to such scenarios would be the monetary value, handiness, and popularity of the freshly launched theoretical account as opposed to its pre dessesor.eg The new theoretical account may non be as popular due do whatever ground ( monetary value, reliabilty, features etc ) A good illustration of this is the Toyota Landcruizer Pickup ( these vehicles really increase in value because of the of all time increasing monetary value of newer theoretical accounts ) I many cases the opposite is true. Newly launched theoretical account genarally offer more characteristics as good every bit good as modernised styling and forms and the increased demand may so influenceowners of old theoretical accounts to purchase, doing an over supply on used theoretical accounts, therefore act uponing valuse of used vehicles negatively. 5.How does VAT work in the sale of a second-hand auto? Input VAT is claimed by the trader on the prurchase monetary value ( trade-in monetary value ) at the set rate, effectivley devaluating the vehicle by 14 % at the current VAT rate. A net income border is so added to the adjusted cost monetary value of the vehicle and VAT added to the amount of the adjusted cost monetary value plus the net income border ( retail monetary value ) VAT is hence efficaciously charged merely on the accomplished net income of a used vehicle 6.Are there any guidelines when pricing a second-hand auto? The most normally used guidline is a used value brochure issued by Mead and Mcgrouther, naming used vehicle values by maker per theoretical account derived function. These guidelines are compliled by manner of a complex coverage system aquired by the providers of the brochure from information gathered monthly from a broad spectrum of traders who report to Mead and Mc Grouther on the follwing issues. 1. Higest monetary value realised on each specific brand and theoretical account. 2. lowest monetary value realised on each specific brand and theoretical account 3. Condition of the vehicles reported, categorised into exellent, good, just etc 4 Mileage of the vehicles reported The guidelines in the brochure list both the suggested trade in monetary value every bit good as the suggested retail monetary value. These monetary values, used in concurrence with a formulated graph in the dorsum of the brochure, stipulating the per centum allowed for addition/deduction as per the status of the vehicle and its milage determines the guideline used by the trader to explicate a value. Other factors which may act upon this value are fixs neccesary to market the vehicle effectivley as stipulated under inquiry 3: 7.What can a concern or individual do to act upon the monetary value that they could acquire for a trade-in? 1. Ensure that your auto is clean and free of defects 2 Service on a regular basis with a commissioned service fix Centre ( perferably with a franchise trader ) 3. Ensure that the service manual is up to day of the month and in the vehicle for review 4. Keep elaborate transcripts of all interventions/repairs and service bills as a history file for anterior review when merchandising the vehicle 8.Is there a peculiar clip of the twelvemonth that it is better to purchase or sell or trade-an a vehicle? Historically makers tend to lauch new theoretical accounts at twelvemonth terminal. In the yesteryear, it was possible to registry such freshly lauched theoretical accounts in the undermentioned twelvemonth provided the vehicle was registered within 21 yearss of reception of the vehicle as per the 21 twenty-four hours temporay license issued. However the new Natis systemdoes non let for this and it is hence unpointed buying a vehicle before twelvemonth terminal. It would besides be wise to take monetary value hikings, historically scheduled by manufactureres for near on twelvemonth terminal, into consideration in concurrence with the twelvemonth of regiistration eg.it would non neccesarlily be better to wait a month or so to enable you to purchase a auto registerd in the undermentioned twelvemonth if monetary value hikings eliminate the salvaging you may hold had when trading in your vehicle Cheaper vehicles tend to bring better monetary values during Jan through the first portion of Feb as demand is increased by pupils, and public-service corporation type vehicles tend to bring better monetary values at the start of the vacation seasons 1.What is depreciation and why do we account for it? The older the vehicle the less the trade in 2.Do two vehicles of the same brand with similar characteristics depreciate at the same rate? Why is this so? The first twelvemonth both autos will deprecate approx 37 % .A It usually depreciates between 27-30 % , evidently the more expensive the vehicle, the more depreciation in rand value 3.What factors, except the brand of the vehicle, act upon the monetary value of a second-hand auto? Vehicle must be orderly and tidy ; tyres in good status, non involved in an accident, upholstery in good status, the lower the milage the better, no bit marks on windshield, rust free 4. If a newer theoretical account of a auto comes out, how does this impact the monetary value of the old theoretical account and the Second-hand market? Normally if a new theoretical account comes out, it comes with an addition in monetary value, to acquire rid of old theoretical accounts ASAP ; A all depends on the fiscal place of client, if a smart face lift of the new theoretical account, client will instead purchase new one 5.How does VAT work in the sale of a second-hand auto? Precisely the same for new autos, VAT is collectible for both 6.Are there any guidelines when pricing a second-hand auto? One has to follow the guidelines in the Mead & A ; McGrouther ; following taken into consideration: A low milage, status, tyres, rust, accident free 7.What can a concern or individual do to act upon the monetary value that they could acquire for a trade-in? Same as inquiry 3 8.Is there a peculiar clip of the twelvemonth that it is better to purchase or sell or trade-an a vehicle? If you trade in a vehicle in Nov/Dec you will acquire more, but on the other manus if you buy in January, auto will be registered in the New Year.Section 11.What is depreciation and why do we account for it?Depreciation is the lasting and go oning decline in the quality, measure or value of an plus. Depreciation Accounting trades with the allotment of costs of fixed assets over their utile lives. For illustration, when we buy fixed plus like mill machinery, this is simply an beforehand payment of which we expect that this fixed plus is able to heighten or gain certain net incomes for the concern. Over a period of clip, the fixed plus we buy will go valueless or unable to bring forth the necessary net incomes. To reflect this go oning decline in the value of the mill machinery, we need to use depreciation accounting. The grounds for depreciation are: wear and tear, obsolescence, falls in market monetary value, effluxion of clip, physical factors, and insufficiency. Reasons why we account for depreciation are: to determine the net earnings/profit for an accounting period, depreciation demands to be computed. Depreciation usually constitutes a major portion of the disbursals of the concern. As the concern buys fixed assets, it expects the fixed assets over the utile lives are able to bring forth the necessary grosss for its concern. Whilst grosss being earned and if there is no allotment of depreciation cost to fit this gross, income will so be overstated. Besides, fixed assets in the Balance Sheet will be overstated if depreciation is non provided for. Merely that portion of the costs of fixed assets that have non expired should be reflected in the Balance sheet otherwise the fiscal statement would non reflect a true and just position. And if depreciation is non provided for and presuming if the whole net incomes were withdrawn during the life of the plus, extra capital would hold to be raised when it is clip to replace the fixed assets. By bear downing depreciation against net incomes, the ultimate residuary net income available for distribution is lowered and that financess are retained in the concern for future replacing 2.Look in a newspaper for two different makes of new autos ( e.g. A Hyundai and a Mercedes ) of your pick and note their monetary values. Find the same two makes of autos with similar characteristics for sale second-hand guaranting that they both are every bit old as the other ( e.g. 2 old ages old ) . Calculate how much each brand of auto has deprecated per centum wise over the clip period. Did both makes depreciate by the same per centum? Explain why do you believe this is so? The depreciation of a vehicle largely depends on the application of it by the driver. Therefore, two vehicles of the same brand and theoretical account may deprecate a different rate. A vehicle will usually deprecate at a rate of 27-30 % per twelvemonth. 3.Besides theoretical accounts, describe other factors the influence the monetary value of a second-hand auto. Second manus auto monetary value must be based upon the marketability of the auto, which you wish to sell. If brand and theoretical account of your auto is new, so decidedly you may wish to sell it every bit shortly as possible. Other factors which may act upon the monetary value of a second-hand auto are: milage, status, particular characteristics of the auto, who has been driving the auto, gasoline ingestion and has any major decorative or mechanical betterments been made to the auto recently. 4.If a new theoretical account of a peculiar auto comes out, how does that impact the monetary value of the old theoretical account and what consequence does this hold on the second-hand market? When a newer theoretical account of a auto comes out, the monetary value of the old theoretical account will be cheaper. This is due to the fact that the older auto theoretical account is out dated. Its engineering is less advanced than the newer theoretical accounts. On the other manus, a vehicle may be popular and therefore the monetary value will go on to increase. 5.How does VAT work in the sale of a second-hand auto? There are two ways in which motor traders handle VAT on used vehicles. Some charge VAT merely on the net income they make on the sale of the auto. This is known as the second-hand border strategy, used by most auto traders. Alternatively, they can bear down VAT on the entire dealing cost – that is the second-hand merchandising monetary value achieved. It depends on how they choose to maintain their records. The second-hand border strategy requires more paperwork from the trader. He must, for illustration, maintain the relevant stock books, which include inside informations such as the auto ‘s engine figure. Each method of bear downing VAT is legal, and HMRC is concerned merely that the trader tells them which strategy he is utilizing. There is no duty for the trader to state the client at the beginning which method of bear downing VAT will be used. Nor is at that place a legal right for the client to cognize, or be told, how much of the monetary value comprises VAT. Yet as VAT on the full purchase monetary value is likely to be instead more than VAT on the trader ‘s net income on the dealing, it seems to me worth inquiring which method of bear downing VAT a auto trader uses before make up one's minding to purchase.6.Are there guidelines for all traders when pricing second-hand autos?Pricing of used autos can be affected by geographics: for illustration, a saloon will do more sence in a metropolis than in an waterless country where it is hard to drive. Similarly, pickups are frequently more in demand in rural than urban scenes. Condition – Is the auto in excellent, good or just status – has a major impact on pricing. Condition is based on visual aspects, vehicle history, mechanical status and milage. There is much subjectiveness in how the status of a auto is evaluated.7.List some things a individual or concern can make to act upon the monetary value that they could acquire for a trade-in?When it comes to acquiring value for y our trade-in, one should ever make 1s homework.The key to making good in a dealing with a trader is to be knowledgeable.Before heading to the auto batch, research your auto online. One should understand the market every bit good. Be realistic about what you ‘re selling, expression at your milage and how good the auto has been kept. All these things come into drama when valuing your auto. Cleaning your auto may somewhat increase your autos book value. Regardless of what the car pricing ushers say, it ‘s up to the trader to accept your trade-in. So, it ‘s of import to look at your auto or truck from the trader ‘s point of view.One of the franchise ‘s major concerns is finding how rapidly your trade-in is likely to sell to another purchaser. When trading-in a auto, a trader looks at the vehicle, walks around it, look into it to see if it ‘s had pigment work and look into to see if any harm has been done to it and take the vehicle for a thrust. They will look into to see what mend the vehicle will necessitate to acquire up to standard or they have to make up one's mind if it would be excessively much to hold the fixs done. They will besides be cognizant of what a auto is presently selling for. A smaller auto trade-in that are in great status menu better right now.If you have a clean, used auto, with no accidents and no amendss, and if it ‘s a four-cylinder or six-cylinder engine, it will convey a just monetary value. Of class, it ‘s up to the consumer to research in progress what that just monetary value could be. If you ‘re merchandising in a newer-model used auto, so surprisingly, it could work against you. If it ‘s a twelvemonth or less, the auto could still be viing with new cars of the same brand and theoretical account. In add-on, the maker may be offering particular inducements for the new auto. Separate the trade-in and new auto transactions.There are many variables involved in buying a new ( or new-to-you ) auto, including the finance rate, new auto monetary value and down payment sum. Make certain the monetary value you get for your trade is non affected by any of them. The first trader you meet, maintain your options open when negociating a trade in, do non restrict yourself to merely one trader.Section 21.What is an plus registry and what does it include?The plus registry is a tool, which helps you to remain in control of your assets in a simple and efficient mode. Here, you register all the inside informations for each single plus: designation figure of plus, description of plus, on which day of the month it was bought, cost, how it was financed, rate and method of depreciation, one-year depreciation for each twelvemonth of its life, current book value, day of the month of disposal and returns from disposal.2.How does a concern make up one's mind what vehicle to buy-model, do, colour, ect? On what are these determinations based?Obviously fundss will be the biggest factor when make up one's minding what vehicle to buy. The vehicle must be low-cost, fuel efficient and easy maintained to cut down the running cost. It will besides hold to an intended intent. For illustration, an electrician requires a pick-up truck to be able to transport his equipment ; a saloon will be of no usage to him at all. A company like Henning Crushers will purchase big choice truck to transport bricks and other natural stuffs.3.What method and rate of depreciation does your concern usage and why?A concern like Henning crusher depreciates its vehicles at a rate of 15 % a twelvemonth on the cost monetary value method. This is due to revenue enhancement intents and the fact that a vehicle will deprecate really rapidly.4.How does a concern decide when to sell or merchandise a vehicle?What form is your used auto in? If your auto is in good form, you might see selling it yourself. If you need to do fixs, though, you need to chew over how much you ‘re traveling to put in the fixs. The truth is you might non reimburse the full investing. So, weigh the possible cost of fixs against the potency added value. Regardless if you sell or trade in your used auto, it has to be in good form. Follow my bit-by-bit instructions for selling or trading in your used auto. A batch of research is necessary whether you sell or trade in your used auto. Trading your used auto in requires traveling to the top three rating sites: Edmunds.com, kbb.com, and NADA.com and set uping a monetary value you will realistically acquire for your used auto if you trade it in. Selling your auto requires the same measure, but it besides requires you researching the best methods for selling your used auto. You besides have to research how to do the transportation when the clip comes every bit good as research what others in your country are seeking to sell their used autos for. Do you like paperwork? When you sell your used auto to a trader, the franchise has staff to manage the paperwork for you. Basically, you drop off the keys and they present you with a neat and tidy bundle of documents to subscribe. Your home bases either get transferred or you get a new enrollment depending on your province ‘s patterns. When you sell your used auto to a private purchaser, you have to make all the paperwork yourself. You have to do certain the dealing is handled decently and the rubric transportation is done right. Make it wrong and you could go on to be the proprietor for revenue enhancement and liabilities of the vehicle. Plus, you have to travel to your motor vehicle office and consequence all the necessary paperwork alterations. What is your clip worth to you?5.Why is it of import to reexamine the value of a vehicle from the point of position of sing them?Vehicle insurance ( besides known as car insurance, auto insurance, or motor insurance ) is insurance purchased for autos, trucks, and other vehicles. Its primary usage is to supply protection against losingss incurred as a consequence of traffic accidents and against liability that could be incurred in an accident. Harmonizing to the insurance policy, a plus must be insured as near to its true value as possible. If the vehicle were to be insured for a higher value than it is genuinely deserving and a accident or larceny takes topographic point, the insurance company will pay ou less than for what the vehicle is insured. Therefore you may do a loss. This state of affairs is known as over-insured. While being under-insured, will intend that you will be paid out less than the vehicles true value in instance of a ccident or larceny.6.What does the concern do to seek to keep the value of its vehicles?A vehicle care log is a diary of all care performed on a peculiar vehicle. Each entry includes a day of the month, milage as of that twenty-four hours, inside informations about the type of work done, and who performed the service. The care log might besides include grosss and a agenda for farther care. One of the most common grounds to maintain a vehicle care log is for a leased auto to demo that you have honored your terminal of the rental contract by maintaining up with standard care on the vehicle at, or prior to, the maker ‘s suggested clip intervals. A vehicle care log will clearly demo oil alterations, tyre rotary motions, brake reviews or replacings and so on. At the clip you return your vehicle from rental, you may be asked to turn out that the auto was maintained decently. The vehicle care log will come in really ready to hand. Another common ground to maintain a vehicle care log is when utilizing a company auto. Often it is required in this instance for revenue enhancement intents. Everything related to the auto, abruptly of utilizing it for pleasance, is a write-down for the company. This includes gasolene and all care. Therefore rigorous records are required. A vehicle care log works absolutely. Similarly, if utilizing your private auto for company concern a part of gasolene, milage and care might be revenue enhancement deductible. Often, concerns will reimburse you alternatively, but in either instance a vehicle care log is required. Whenever the auto is used for concern intents, get downing and stoping milage must be noted and dated in the log. However, a vehicle care log is a good thought for anyone. It ‘s easy to bury how long it ‘s been since certain care has been performed without a record. Again, a good kept up auto is a safer auto and can take to salvage money on fixs down the route. Besides, cogent evidence that you have maintained your vehicle decently is really of import to the following purchaser and really increases the value of the vehicle. It exudes an air of attention and meticulosity, and a auto that has been maintained is less likely to hold or develop serious jobs. Finally, when you do hold to take the auto in for fixs, it ‘s ready to hand for the technician to see the work that has already been done. There are many ways to make a vehicle care log either utilizing a simple clean logbook or a spreadsheet in a plan such as Excel. However there are besides package plans like Automotive Wolf by Lonewolf Software that will non merely maintain path of your care but will cipher your gas milage for you and much more. Automotive Wolf besides has an attractive â€Å" vehicle interface † that uses gages to allow you cognize when certain care is due. This package and plans like it are modestly priced and free to seek if downloaded off the Internet. If utilizing package, it ‘s a good thought to maintain a simple coiling notepad in your baseball mitt compartment to jot down milage and inside informations that you can later enter into the package or spreadsheet. Some software-based vehicle care logs are designed to run on Portable Digital Assistants ( PDAs ) so you can come in your information right from the drivers seat! Whether you take the simple path of doing your ain log, or a fancy option, maintaining a vehicle care log is a smart move that can merely work to your advantage!7.Does the concern normally make a net income or a loss on gross revenues of vehicles? Why?A loss. This is due to factors like depreciation, use and the wear and tear of a vehicle of a clip period. Besides, newer theoretical account and engineering are invariably being released into the market.8.What internal control processes does your concern have to pull off its touchable assets?Procedures effected by an entity ‘s board of managers, direction and other forces, designed to supply sensible confidence sing the accomplishment of aims in the undermentioned classs: Effectiveness and efficiency of operations ; Reliability of fiscal coverage ; and Compliance with applicable Torahs and ordinances. Accurate and complete historical accounting and fiscal statement information Performance direction procedures Strategic planning Budget and prognosis mechanism – Capital outgo analysis, budgets, and direction – Cash flow direction Established precedences that align operations – Coordinated functional activities – Infrastructure that facilitates activity and does n't restrain operations Business hazard analysis and direction plans Accurate, defendable ratings of touchable assets play a critical function in many concern state of affairss, runing from the mundane to the esoteric. Real and personal belongings ratings are of import for revenue enhancement and fiscal coverage, plus monitoring, belongings insurance, ad valorem revenue enhancements and replacing budgeting. At the other terminal of the spectrum, rating of assets can be an indispensable tool in set uping monetary values, warranting places to shareholders and fulfilling governmental concerns in the class of corporate amalgamations, acquisitions, refinancing and restructuring.GlossaryAsset- In concern an accounting, assets are everything of value that is owned by a individual or company. Any belongings or object of value that one possesses, normally considered as applicable to the payment of one ‘s debts is considered an plus. Simplistically stated, assets are things of value that can be readily converted into hard currency. Examples of assets are: hard currency, pre-paid expences, vehicles, machinery, land and edifices. Fixed assets- Besides referred to as PPE ( belongings, works, and equipment ) , these are purchased for continued and long-run usage in gaining net income in a concern. This group includes land, edifices, machinery, furniture, tools, and certain wasting resources for example, forest and minerals. They are written off against net incomes over their awaited life by bear downing depreciation disbursals ( with exclusion of land ) . Accumulated depreciation is shown in the face of the balance sheet or in the notes. Current assets- Current assets are hard currency and other assets expected to be converted to hard currency, sold, or consumed either in a twelvemonth or in the operating rhythm. These assets are continually turned over in the class of a concern during normal concern activity. Examples of current assets are: hard currency, pre-paid disbursals, debitors and money in the bank. Depreciation- In simple words we can state that depreciation is the decrease in the value of an plus due to usage, transition of clip, wear and tear, technological outdating or obsolescence, depletion, insufficiency, putrefaction, rust, decay or other such factors. Straight-line depreciation-Straight-line depreciation is the simplest and most-often-used technique, in which the company estimates the salvage value of the plus at the terminal of the period during which it will be used to bring forth grosss ( utile life ) and will write off a part of original cost in equal increases over that period. The salvage value is an estimation of the value of the plus at the clip it will be sold or disposed of ; it may be zero or even negative. Salvage value is scrap value, by another name. Declining-Balance Method-Depreciation methods that provide for a higher depreciation charge in the first twelvemonth of an plus ‘s life and bit by bit diminishing charges in subsequent old ages are called accelerated depreciation methods. This may be a more realistic contemplation of an plus ‘s existent expected benefit from the usage of the plus: many assets are most utile when they are new. Value added revenue enhancement ( VAT ) – is a ingestion revenue enhancement levied on value added. In South Africa VAT is 14 % . While in Namibia VAT is 15 % .Section 3When opening a new moderate-sized concern, a vehicle is a really utile plus to acquire the concern off the land. To be successful, the concern must be cognizant of how it plans to acquire its vehicles, how to pull off the depreciation of the vehicles, selling the vehicles, keeping the vehicles and besides commanding the vehicles. Acquisition of vehicles: a concern must take several factors into consideration when purchasing new vehicles. First, a concern can purchase a vehicle foremost or 2nd manus. More factors like the colour of the vehicle, the intent it has to function and the cost of the vehicle have to be considered every bit good. Depreciation of vehicles: Depreciation is the lasting and go oning decline in the quality, measure or value of an plus. Depreciation Accounting trades with the allotment of costs of fixed assets over their utile lives. It is impossible to avoid depreciation. The concern must be prepared to set this disbursal.