Starting a food truck business is an exciting and lucrative venture. Comprehending the financial obligations of running the business is as important as perfecting the art of serving sumptuous delicacies. Depreciation is one critical financial aspect that’ll affect your profitability.
Did you know trucks depreciate between 15% and 25% annually and that trucks weighing approximately 13,000 pounds depreciate in 5-7 years? Knowing your food truck depreciates yearly and by what rate is a lifesaver in the mobile kitchen business.
This way, you can budget effectively, estimate future expenses, and get the most return from your food truck business. Read our comprehensive guide to learn how to calculate the depreciation of food trucks.
What to Consider When Calculating Food Truck Depreciation
Food truck depreciation is the gradual decrease in a mobile kitchen’s value over time due to obsolescence and wear and tear. Here’s what to consider when calculating food truck depreciation.
1. Purchase Cost
This is the original cost you incur when you purchase the food truck. It comprises the purchase price, taxes, and related expenses, e.g., delivery fees.
2. Useful Life
This is the truck’s productive years when it generates maximum returns. It ranges between 5 and 7 years for trucks weighing approximately 13,000 pounds.
3. Salvage Value
Salvage value is the estimated truck’s value at the end of its useful life. It’s the amount you can sell the truck for or its scrap.
4. Depreciation Method
There are two primary depreciation methods–the straight-line and the accelerated methods. While the straight-line method equally distributes depreciation expenses over the useful life, accelerated methods allocate more depreciation in the first few years.
How to Calculate Truck Depreciation
The straight-line and the accelerated methods have pros and cons. The straight-line method is straightforward and the easiest way to calculate truck depreciation. The accelerated methods are complex and may require the input of an accountant.
Here’s how to use the straight-line method: suppose your food truck has a $150,000 purchase price, 5-year useful life, and a $10,000 salvage value.
Step 1: Calculate the truck value depreciated every year
Subtract the salvage value from the initial cost, i.e., (($150,000 – $10,000) = $140,000)
Step 2: Calculate the annual depreciation expense
Divide the truck’s yearly depreciation value by the useful life to calculate the annual depreciation expense. That is, $140,000 divided by five years, which is $28,000.
Step 3: Calculate the monthly depreciation expense
Divide the annual depreciation expense by 12 months, i.e., ( $28,000/12) = $2,333.
Step 4: Create a yearly depreciation schedule
Here’s an example.
Year 1:
- Depreciation Expense: $28,000
- Accumulated Depreciation: $28,000
- Book Value: $140,000 – $28,000 = $112,000
Year 2:
- Depreciation Expense: $28,000
- Accumulated Depreciation: $56,000 ($28,000 from Year 1 + $28,000 from Year 2)
- Book Value: $140,000 – $56,000 = $84,000
Year 3:
- Depreciation Expense: $28,000
- Accumulated Depreciation: $84,000 ($28,000 from Year 1 + $28,000 from Year 2 + $28,000 from Year )
- Book Value: $140,000 – $84,000 = $56,000
Continue this process until the end of the food truck’s useful life.
Ready to Start Your Food Truck Business?
Are you ready to start your food truck business? We can help you find the best custom food trucks and to build a top-of-the-line food truck business. The best part? We also provide repairs and maintenance to help your truck last as long as possible. Contact us to learn more!
