HINTS FOR HAULIERS.
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WE MAY now (after, the interruption caused by my desire to utilize the space at my disposal in lasts. week's issue for considering Mr. .. Gosselin's figures of operating costs and, to his diagrammatic profit and loss account of a haulage establiBiiment) return to the detail discussion of the makeup of the various items which go towards the operating costs of a motor vehicle, with particular regard to the way in which those items should be recorded, and also regarded, by the man who is running his vehicle as a means of making a livelihood. We have
-already discussed all the items of running costs except one, having dealt with fuel, lubricants, maintenance, and tyres, the remaining item being depreciation.
The Vexatious Item—Dep:eciation.
Now, of all the things that have to be considered in 'connection with the running costs of a, motor vehicle, there is none to surpass, for vexation, that of depreciation. ' It is chiefly difficult because even the experts are far from being in agreement as to the correct method of calculating it. It is particularly important to us in this series of articles, because its very existence is disbelieved in by the majority of small hauliers, or, if they believe in it, they are not disposed to make any definite provision against its ultimate effect or to take note of it when arriving at their ideas of costs ana in e.stimatibg their charges. Professional accountants will tell the haulier that depreciation is a standing charge, and must he calculated as a percentage of the first cost-of the vehicle. Other knowledgeable people (such as the experti-of the Ministry of Transport and yours truly "The Sketch ") look upon this item as a running cost, to be reckoned in ;direct proportion to the mileage covered by the machine, holding that the motor vehicle depreciates as it goes, something like that rather' unsatisfactory type of watch . which, as it owner will tell you, ." only goes when he goes."
The question is most difficult; to argue, because, as. a
matter of fact,. both views are right, for, whilst it is quite true that a Wagon. does not while it is idle, depreciate anything-like so quickly as it does when it is in use, it would be folly to deny.that. it' does actually depreciate, 'even if it stands in the garage all its life, notwithstanding the fact that it may be kept dry and spotlessly clean all the time.. Anyone who has tried te sell a year-old wagon; even if it ha S never turned a wheel since it was delivered by the makers,
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Depreciation Regarded from the Income Tax Point of View. . , . will appreciate that point. • •
One particular and special reason why the accountant's method of reckoning depreciation must not be ignored is theimportance of this item with reference to income tax retains. For pin-Poses of calculating income tax, the revenue authorities allow a motor vehicle to be depreciated, in the case ef a petrol vehicle, at,the rate of 20 per cent.; and as regards a steamer at the rate of 15 per cent., per annum, the percentage being calculated on the "written down" value • of the machine in each case. That is to say, for the first year the percentage is calculated on the first east, but at the end of the first year its value, having already been depreciated—" written down "to the amount indicated by that percentage, the depreciation for the second year is only to be reckoned on the depreciated first cult—that is, the first cost, less the amount already deducted. I will illustrate by examples. 'Suppose that the reader owns a machine for which he has paid, this year, 21,000. Then, for this year, in making his return of income to the income tax inspector, he may claim that the machine has depreciated in value to-the extent of 20 per cent., or 2200, if it is a petrol chassis, and 13 per cent. or 2150, if it happens to be .a steam wagon. He should enter those amounts up on his, return of income as actual expense in connection with his business. For next year, however, the owner of the petrol wagon will only be able to claim 20 per cent.. on 2800, which is the written-down value of his machine for that year, and his depreciation will, therefore, be only 2160, that of the.steam-wagon owner being only 15 per cent. of 21,000, less £150, or 2850; which works out at 2127 tOs. In the third ya,r the depreciation of the petrol wagon, for purposes of income tax return, will only he 20 per cent. on 440, which is 2128, and iii the fourth year but 20 per 'cent. on 2512-2102 8s.
Vehicle Value after Three Years' Use.
£512 is what the .revenue authorities think a petrol lorry which originally Cost 21,000 is worth at the end of three years, and it, has to be admitted that they are not far out in their calculations, bearing in mind average conditions. A careful owner-driver might so keep his'rnachine in good trim that, as. a matter of fact, it was intrinsically worth more than 512 at the end of three years, but it is very unlikely That he would get much more than that for it, if anything, if he had to sell in the open market. He certa,inly would not get so much for it to-day, with so many "
disposals" vehicles still on offer at 'very low figures.
A simple' add practical way of reckoning depreeia• tion on anannual basis, as when considering the Purchase of a second-hand vehicle which has been reasonably used ;and .fairly well cared for, is to take off. 23 per eent, for the first year Or part of a year and 15 per ;cent for each succeeding year or part of a year, reckoning the percentage in every case an the first cost of the vehicle, less tyres. This is easier to calculate than:the official method, and is near enough for the. purpose. By that method a 21,000 Machine would he worth 2450 at the end of the' third year, as against the 2512 Computed by the income tax assessors. At the end of six years.the vehicle would be reckoned as worth practically nothing, which, although not strictly applicable to every case, would be fairly near to the truth in the 'majority of instances, for the buyer of a machine which has seen more than six or seven years' commercial service is, in all but the exceptional cases, purchasing trouble.
The PrOfitable' Life of a Commercial Vehicle.
For our purpose—that of estimating digs and eharges—the only satis.factory basis on which. to reckon depreciation is -the mileage one.. -For a modern vehicle of good make a profit-taking life of 150,000 miles May be expected. On that basis any owner may reckon the amount which he must set aside
as depreciation, and, so calculated, the running costs of any lorry per mile are, so far as depreciation is concerned, the net first cost of the chassis and body, less tyres, divided by 150,000. The special advantage of this method, which is quite accurate enough for all practical purposes, is that it avoids any need for the consideration of second-hand prices. The current first cost of a new vehicle of the type in question is always the basis for calculation. The depreciation figure for all vehicles of the same type is then the same.
If a man has bought a new vehicle for £1,000, the tyres being worth £100, then his depreciation charge per mile is:—£000 (got by subtracting £100, the cost of the tyres, from £1,000, the total cost of the vehicle, with body), divided by 150,000, which is 1.44d. If he has bought a second-hand machine of the same make, then his depreciation per mile is still the same, for it is de depreciation per mile of that type of machine, whatever its age. I am well aware that this sounds a bit Irish; for if a chassis were bought which had already done over 15a,000 miles, then, surely, it would have no depreciation to speak of, being, so far as accounts are concerned, dead. It would not be dead, however, to the man who had bought it, and he would still need to have some money from somewhere to buy another, when it should have become absolutely useless, so that, although the logic of my method is open to argument in that way, it is, as a practical proposition, quite sound. In the case of second-rate chassis, machines which are generally known not to last so long as the bettor makes—I am unable to particularize—then 100,000 miles should be the basis. Assuming that a vehicle of this clam was bought new for, say, 2200, of which £35 represents the cost of its tyres, then the depreciation per mile would be £165 divided by 100,000, which is 0.4d. per mile. THE SKOTCH.