Depreciating trucks and trailers each month
How a transport business adds trucks and trailers to the fixed-asset register, depreciates them monthly and records the profit or loss when one is sold.
By Achekam · · 4 min read · For Logistics businesses in South Africa, Nigeria, Kenya
For a transport business, the fleet is usually the biggest thing it owns. A new truck tractor or a set of trailers can cost more than a year's profit, and the business will use it for many years. Put the whole cost through the income statement in the month it is bought, and that month shows a huge loss while every following year looks better than it really was. Leave the vehicles on the balance sheet at cost for ever, and the business looks richer than it is.
Depreciation spreads the cost of each vehicle over the years it earns money. Done monthly, it also makes management accounts honest: every month carries its share of the fleet's cost, just as it carries fuel and drivers' wages. This article explains how to do it in Achekam's fixed-asset register.
Adding vehicles at cost
Achekam's fixed-asset register lets a business add each asset at its cost. For a fleet, three habits make the register useful:
- One asset per unit. Register each truck tractor and each trailer separately, not "fleet" as a single line. Tractors and trailers wear out at different rates, are sold at different times and may be financed separately.
- Cost means the cost of getting it into service. Besides the purchase price, a vehicle's cost may include things like the body, a tail-lift or tanker fittings fitted before it went into service. Agree with your accountant what you include, and apply it consistently.
- Use identifying details in the asset name. Registration or fleet number makes it easy to find the right unit when one is sold, written off or transferred.
Your chart of accounts, created when the books first open, can be extended with accounts for vehicles, trailers and their accumulated depreciation if your accountant wants them shown separately. Accounts can be added, renamed or switched off.
Straight line or reducing balance
The register depreciates assets monthly by one of two methods:
| Method | How it works in words | Often chosen for |
|---|---|---|
| Straight line | The same charge every month over the asset's useful life | Assets that wear evenly, or where simplicity matters |
| Reducing balance | A fixed rate applied to what is left each month, so the charge is larger early and smaller later | Assets that lose most of their value early, as many vehicles do |
Neither is right for every fleet. The choice, and the useful life or rate for each class of vehicle, is an accounting decision to make with your accountant and apply consistently. Once chosen, it should not change from year to year without a good reason.
Think, too, about how long your business actually keeps each class of vehicle and what it usually fetches when sold. An operator that runs tractors hard on long-distance routes and replaces them early has a different pattern from one that keeps trailers for as long as they pass roadworthy tests. The useful life or rate you choose should reflect your own fleet, not a figure borrowed from someone else's.
A journal each month
Each month, the register posts a depreciation journal. That journal appears in the general ledger like any other posted line, and the trial balance, which shows each account for all time, for a period or at a date, reflects it. Your management accounts then carry depreciation every month instead of a single catch-up entry at year end.
Timing matters. Months in Achekam can be soft-closed, hard-closed and locked, and a closed month refuses postings from every source, depreciation included. Make sure the month's depreciation journal is posted before you close the month. Reopening a hard close needs a second approver, so a forgotten depreciation journal is an avoidable nuisance.
Selling or scrapping a vehicle
Trucks are sold, traded in, written off after accidents and scrapped. When that happens, the register disposes of the asset and posts the profit or loss.
A disposal in words
A transport company sells an old trailer to a smaller operator. In the register, the trailer is disposed of on the date of sale. Achekam compares what the trailer was still carried at, its cost less the depreciation built up, with what the buyer paid, and posts the difference as a profit or a loss on disposal.
If a vehicle is written off after an accident, the same disposal records the loss, and any insurance payout is recorded when it is received. Ask your accountant how they want the insurance claim shown while it is outstanding.
If a disposal was recorded wrongly, remember that a posted journal in Achekam is corrected only by a reversal, not by editing or deleting it.
Tax wear-and-tear is worked out elsewhere
Accounting depreciation and tax allowances are different calculations. Each country's tax rules set their own allowances for vehicles, and they rarely match the depreciation in your books. Achekam's register does not work out tax wear-and-tear. Your tax practitioner calculates the allowances for your tax return from the register and the purchase documents, and the difference between the two is dealt with in the tax computation. In South Africa, SARS sets out the wear-and-tear allowance, with write-off periods for assets such as delivery vehicles and trucks, in its interpretation note on the wear-and-tear or depreciation allowance.
A month-end checklist for the fleet
- Add every vehicle bought in the month, at cost, with its registration or fleet number.
- Record any vehicle sold, scrapped or written off.
- Confirm the month's depreciation journal is posted.
- Check the trial balance shows the expected charge and that debits equal credits.
- Close the month.
Depreciation is one of several month-end entries a freight business needs. Carrier costs that arrive late are another; see accruing carrier costs at month end. And running costs such as fuel and tolls can be brought in from the invoices themselves, as described in carrier invoices turned into suggested postings.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
