How is vehicle depreciation calculated?

• A. By averaging the market value
• B. Percentage of car cost per month
• C. Based on mileage
• D. Using a flat fee regardless of vehicle type

Answer: (B)

Vehicle depreciation is often calculated as a percentage of the car's original cost per month. This method is based on the understanding that vehicles typically lose value over time at a relatively steady rate. By applying a specific percentage to the initial purchase price of the vehicle, one can estimate how much value the vehicle has lost each month. This approach takes into account factors such as the age of the vehicle and the general depreciation trends in the automotive market.

Utilizing this method allows for a simple and straightforward way to track depreciation, as it typically reflects the gradual decrease in value associated with the passage of time and usage. This method is particularly favored for its clarity and predictability compared to other methods, which might involve more complex calculations or factors.

In contrast, some other methods of depreciation might rely on varying measurements like market value changes, mileage, or fixed rates that do not consider individual vehicle circumstances effectively. For example, while mileage can influence the depreciation value, it is not the sole determining factor, as the initial cost and market trends play significant roles as well.