Depreciation Costs
After you've paid $100K for a brand new car... do you want to known how much that works out to be in terms of monthly expenses? In other words, do you want to know how this $100K translates into costs that you have to fork out each month? This is basically what depreciation is about. It doesn't matter if you've forked out the initial $100K in cash, or you're taking out a loan and will be paying monthly installments... depreciation is the same. If it sounds strange and fuzzy, well, accounting is. Depreciation is an accounting cost.
In Singapore, cars are typically expected to last 10 years before they are scrapped. So the useful life-span of a car is assumed to be 10 years. You can't simply divide 10 years or 120 months into the initial purchase price to arrive at depreciation cost, because there is some residue value (i.e. the scrap value) left of the car at 10 years.
In a nutshell, the scrap value of a car at 10 years is 80% of OMV (for cars registered before May 2002) or 50% of ARF which is 110% of OMV (for cars registered from May 2002). The OMV (Open Market Value) for your car is stated in the Vehicle Registration Card (commonly known as the logbook). This scrap value is also known as the PARF rebate.
Hence, if you drive your car for 10 years, the monthly depreciation cost of your car is basically (Purchase Price - Scrap Value) / 120 months.
If you scrap your car early (i.e. before 10 years), you get back a higher PARF rebate and also a rebate on unused COE. You can check on the details from the LTA Website. You can also calculate your scrap value at any point in time using LTA's Enquiry of PARF/COE Rebate application. You'll probably find that your depreciation costs varies depending on when you intend to scrap the car.
An alternative to scrapping is to sell your car to the 2nd hand car market. However for most purpose of calculating depreciation cost, it is quite sufficient to use the 10th year PARF rebate for the residue value at year 10.
Example:
| Registered Date: | Before May 2002 | From May 2002 Onward |
| Purchase Price: | $91888 | $66876 |
| OMV: | $19126 | $16400 |
| Scrap Value at Year 10: | $19126 x 80% = $15300.80 | $16400 x 110% x 50% = $9020 |
| Monthly Depreciation: | ($91888 - $15300.80) / 120 = $638.23 | ($66876 - $9020) / 120 = $482.13 |
