Truck Depreciation: Straight-Line vs Usage-Based for Fleets

Two tractors bought in the same week carry the same depreciation charge every month, yet one has run 160,000 miles on a dedicated retail lane and the other 70,000 on regional shuttles. When the first is traded at year four, the sale books a loss; the second sells at a gain. The finance team reports both as "disposal noise", and operations stops trusting the cost-per-mile figures that include depreciation.

The fix is not always a usage-based method. It is a deliberate choice between straight-line and per-kilometre (or per-mile) depreciation, backed by the odometer evidence, residual values and component splits that each method needs, and kept separate from the tax schedule. This guide shows how to make that choice and run it month by month without inventing precision the data cannot support.

• What this covers: the accounting basis in US GAAP and Ind AS, the Schedule II lives for Indian lorries, odometer controls, residual reviews, component accounting, method changes and the separate tax ledger under MACRS and Section 33 of the Income-tax Act, 2025.
• What it adds: one tractor depreciated three ways in dollars, one hired-out goods carrier in rupees, a per-km formula with a time floor, a dated odometer failure and a register checklist.

Time-based or distance-based: what each method assumes about wear

Straight-line assumes a truck gives up the same share of its value each month; a usage method assumes distance is what consumes it. Both are acceptable in principle, so the decision rests on which assumption fits the duty cycle and whether the fleet can prove its distance figures to an auditor.

Under US GAAP, ASC 360-10-35-4 requires cost less salvage to be spread over the useful life "in a systematic and rational manner", and PwC's guide lists units-of-production alongside straight-line and declining-balance methods. Ind AS 16 paragraph 60 is sharper: the method must reflect the pattern in which the entity expects to consume the asset's economic benefits, and paragraph 62 names straight-line, diminishing balance and units of production as the usual choices.

• Revenue-based charges excluded: Ind AS 16 paragraph 62A says a method based on revenue generated by an activity that uses the asset is not appropriate, because freight revenue moves with rates, fuel surcharges and inflation rather than wear, so a charge per trip invoiced is out.
• Distance-based charges allowed: a charge per kilometre or mile actually driven measures use, not price, so it fits the units of production method.

A useful rule of thumb from fleet reviews: if a vehicle's annual distance varies by less than about a quarter from year to year, straight-line and per-km produce charges close enough that the extra data work rarely pays. Above that spread, or where trucks move between long-haul and shunting duty mid-life, per-km begins to earn its keep.

Odometer evidence that makes a per-kilometre charge auditable

A per-km method is only as good as the distance it multiplies. Auditors will ask where each month's kilometres came from, whether a reading can go backwards, and what happened when a dashboard was replaced, so the distance feed needs the same controls as a sub-ledger.

Most fleets have three candidate sources: the engine control unit odometer read by the telematics unit, the trip sheet or lorry receipt kilometres entered by dispatch, and the fuel card or fuel-slip odometer typed at the pump. Treat the ECU reading as primary and the other two as cross-checks. Our preventive maintenance planning guide uses the same readings to trigger service; this article uses them to value the asset, which raises the bar on locking and correction.

• Monotonic check: reject any reading lower than the previous accepted one unless a cluster or ECU replacement record exists for that vehicle and date.
• Jump check: flag any month above a ceiling such as 1.5 times the vehicle's trailing six-month average, which catches unit-conversion errors and duplicated feeds.
• Cross-check band: compare ECU distance with routed or billed distance; a gap wider than an agreed band, say 8%, goes to the fleet manager before the run.
• Replacement log: store the old final reading, the new opening reading and the workshop job card for every cluster or ECU swap.
• Period lock: once the controller locks a month's kilometres, later corrections post in the next period with a reference to the original reading.

The trace below shows what happens without the replacement log. The vehicle, readings and run numbers are illustrative.

1. 18 Mar 2026, 14:05: workshop job JC-5521 replaces the instrument cluster on goods carrier GC-117 after a fault. The new cluster opens at 112 km; the old one closed at 341,860 km. Nobody records the closing figure.
2. 31 Mar 2026, 22:40: the telematics feed posts a month-end reading of 4,930 km. The fixed-asset module, seeing a fall from 341,860, treats the reading as a reset and computes zero distance for March.
3. 1 Apr 2026, 09:15: depreciation run DEP-2603 posts nothing for GC-117. A second truck with a duplicated feed posts double its distance, so the fleet total looks normal and no variance alert fires.
4. 12 May 2026, 16:30: the year-end review compares accumulated kilometres with the trip sheets and finds March distance missing for GC-117: 2,140 km before the swap and 4,818 after it. At ₹4.22 a kilometre the March charge was understated by about ₹29,400, and the audit trail cannot show why.
5. Controlled version: the swap is logged with both readings, the module computes March distance as 341,860 to the swap plus 4,818 after it, and the duplicated feed fails the jump check before DEP-2603 runs.

Residual values: resale evidence and India's 5% default ceiling

Residual value often moves a truck's annual charge more than the choice of method, so it deserves evidence rather than a habit. Set it from what the same model, age and distance actually fetches, and revisit it every year-end.

Ind AS 16 paragraph 51 requires residual value and useful life to be reviewed at least at each financial year-end, with any change accounted for prospectively as a change in estimate under Ind AS 8. Paragraph 54 adds that if residual value rises to equal or exceed carrying amount, the charge becomes zero until it falls back. Under US GAAP, a change in salvage or life is likewise a change in estimate applied from the period of change.

Residual value for an Indian goods carrier recorded in the fixed-asset register defaults to no more than 5% of original cost under Companies Act Schedule II Part A paragraph 3(i); a higher value needs disclosure and technical advice, and Ind AS 16 paragraph 51 requires the estimate to be reviewed at every financial year-end.

Indian companies face an extra default. Schedule II to the Companies Act, 2013, Part A paragraph 3(i), says residual value "shall not be more than five per cent" of original cost. A company may use a higher figure, but must disclose the difference and justify it with technical advice. For trucks with strong used-vehicle markets that justification is usually easy to build from dealer quotes and auction results; it just has to be on file.

Tyres, reefer units, bodies and engine rebuilds as separate parts

Parts of a truck with a significant cost and a different life should carry their own depreciation. Both Ind AS 16 and Schedule II require it, and doing it well removes most of the odd results that make fleet managers distrust the charge.

Ind AS 16 paragraph 43 requires each part whose cost is significant in relation to the total to be depreciated separately; paragraph 45 lets parts with the same life and method be grouped. Schedule II note 4(a) states the same rule for its Part C lives. For a refrigerated rigid truck, the cooling unit is the obvious candidate: it wears by engine hours, not road distance, and is often replaced before the chassis.

• Chassis and cab: per-km or straight-line over the replacement policy, the main component in every case.
• Refrigeration unit: per engine-hour where the unit logs hours, otherwise straight-line over its expected replacement age.
• Original tyre set: separately per km where the fleet tracks tyres by serial number, as described in our tyre lifecycle records guide; replacement sets are usually treated under the entity's consumables policy.
• Body or tipper box: straight-line where the body is moved between chassis or outlives the first one.
• Major engine overhaul: capitalised as a new part when it extends life, with the replaced part's remaining carrying amount derecognised.

Keep the component count low. Three or four parts per vehicle class is enough for most fleets; splitting out mirrors and seats adds journal lines without changing the result.

One US tractor depreciated three ways over its first two years

For a US over-the-road tractor, straight-line and per-mile give different year-one charges whenever the first year is heavy, while the tax figure differs from both. The illustrative tractor below costs $165,000, has an expected $35,000 residual at five years or 600,000 miles, and runs 140,000 miles in year one and 95,000 in year two.

Straight-line gives ($165,000 less $35,000) over 5 years, or $26,000 a year. Per-mile gives $130,000 over 600,000 miles, or $0.2167 a mile, so $30,333 in year one and $20,583 in year two. For tax, IRS Publication 946 lists tractor units for over-the-road use as 3-year property, salvage is not used under MACRS, and property acquired and placed in service after 19 January 2025 may take a 100% special depreciation allowance unless the business elects out.

The 33.33% first-year MACRS figure is simply the 200% declining-balance rate for a three-year life with a half-year convention. If more than 40% of a year's MACRS additions by cost land in the last quarter, Publication 946 switches the whole year to the mid-quarter convention, which matters for fleets that take delivery of a batch of tractors in November.

US tax depreciation for an over-the-road tractor recorded in the fixed-asset tax ledger follows MACRS, where IRS Publication 946 classes tractor units as 3-year property and disregards salvage value; book depreciation under ASC 360-10-35-4 deducts salvage, so a $165,000 tractor can show a $134,667 first-year book-tax gap.

An Indian hired-out goods carrier under Schedule II and Section 33

For an Indian fleet, the statutory book life comes from Schedule II and the tax deduction from a block of assets, so the two ledgers start apart on day one. The illustrative carrier above is a lorry used in a business of running it on hire, bought and put to use in early April, at the start of the financial year, for ₹40,00,000 before GST.

Schedule II Part C item VI gives motor buses, motor lorries, motor cars and motor taxis "used in a business of running them on hire" a 6-year life, and 8 years where they are not run on hire. Motor vehicles are marked NESD, so the extra-shift uplift in note 6 does not apply. A per-km method is the way heavy, round-the-clock use shows up in the books instead.

• GST on purchase: the GST Council's September 2025 FAQ puts HSN 8704 goods vehicles at 18% from 22 September 2025, down from 28%; where input tax credit is taken, that tax stays out of the asset's cost.
• Credit or depreciation, not both: Section 16(3) of the CGST Act denies input tax credit on the tax component if depreciation has been claimed on that component under income-tax law.
• Tax rate: rule 25 and Appendix I of the Income-tax Rules, 2026 set 30% of written-down value for motor buses, motor lorries and motor taxis used in a hire business.
• Half-year rule: Section 33(4) of the Income-tax Act, 2025 restricts the deduction to 50% of the rate when the asset is put to use for less than 180 days in the tax year, so the same carrier first used in November would get 15%, or ₹6,00,000, in that year.

A 9,00,000 km total life at 1,80,000 km a year implies five years, not six. That is allowed, because Schedule II Part A paragraph 1 defines useful life as a period or a number of production units, but paragraph 3(i) still requires the financial statements to disclose a life that differs from Part C and to justify it with technical advice.

Income-tax depreciation for an Indian lorry run on hire is computed on the block of assets under Section 33 of the Income-tax Act, 2025 at the 30% written-down-value rate in Appendix I of the Income-tax Rules, 2026, halved to 15% when the vehicle is put to use for under 180 days.

Keeping the tax ledger and the statutory books apart

Book depreciation answers how fast the truck is being used up; tax depreciation answers how much the law lets you deduct this year. Run them as two depreciation areas on the same asset record and post the difference to deferred tax, never as one compromise schedule.

The gap is large in both markets. In the US example, a 100% special allowance deducts the whole tractor in year one while the books carry $134,667 of it forward; at an illustrative 25% combined tax rate that is a deferred tax liability of about $33,700 under ASC 740. In India, the block method means the tax ledger never tracks a single truck's carrying amount, so the comparison runs at block level under Ind AS 12.

• Separate areas: one book area with method, life, residual and components; one tax area with class or block, rate and put-to-use date.
• Section 179 limits: Publication 946 gives a 2026 maximum of $2,560,000, reduced dollar for dollar once qualifying additions exceed $4,090,000.
• Disposals: a US sale recaptures earlier deductions as ordinary income up to the gain, while an Indian sale reduces the block's written-down value rather than producing a per-truck gain.
• Cost per mile: lane costing should use book or economic depreciation, as our trucking cost per mile guide recommends, never the tax schedule.

Switching an existing fleet from straight-line to per-km mid-life

A method change for trucks already on the register is applied from the change date forward; prior years are not restated. Document why the expected pattern of wear has changed, because that reason is what makes the switch acceptable.

ASC 250-10-45-18 treats a change in depreciation method as a change in accounting estimate effected by a change in accounting principle, adopted in recognition of a change in the estimated future benefits or their pattern of consumption. Ind AS 16 paragraph 61 requires the method itself to be reviewed at least at each financial year-end and changed if the expected pattern has changed significantly, again as a change in estimate under Ind AS 8.

Per-km depreciation with a time floor (book area, monthly run)

  rate_km   = (C - R - A) / K_rem
  D_usage   = km_month * rate_km
  D_floor   = (C - R - A) / (12 * Y_rem) * f
  D_month   = max(D_usage, D_floor)     if the policy adopts a floor
            = D_usage                   otherwise

  C      capitalised cost of the component (excluding recoverable GST)
  R      residual value at the latest year-end review
  A      accumulated depreciation to the end of the prior month
  K_rem  remaining expected km (or miles) for the component
  Y_rem  remaining years before obsolescence-driven replacement
  f      floor factor agreed with auditors, e.g. 0.5
  km_month  locked, validated distance for the month (>= 0)

Check: sum of D_month over life must equal C - R within 1 currency unit.

Mechanically, take each truck's carrying amount on the switch date, deduct its current residual estimate and divide by the remaining kilometre life. A tractor with $78,000 net book value, $30,000 residual and 260,000 remaining miles gets a new rate of $0.1846 a mile. Our lease versus buy model uses the same remaining-life and residual estimates, so align the two before the next fleet decision.

The floor is optional. Ind AS 16 paragraph 55 accepts a zero charge under a usage method while the asset is idle, but paragraph 56 also lists technical and commercial obsolescence as a factor in useful life. A floor is one way to recognise that a parked truck still ages; agree the factor with your auditors before adopting it.

Register rules that run automatically and judgements that stay human

A fixed-asset module can apply rates, block impossible readings and post both ledgers without help. Estimating life, residual value and the right component split remain judgements, and software, including AI tools, should only prepare evidence for the person who signs them.

Per-kilometre truck depreciation posted from the fixed-asset register under Ind AS 16 paragraph 62 is only auditable when monthly distance is locked after monotonic and jump checks; a single unlogged instrument-cluster swap on a ₹4.22-per-km vehicle can understate one month's charge by more than ₹20,000.

Choosing a method and setting up the register before the next close

Decide the method per vehicle class, not per truck, and set up the register so that every assumption has an owner and a review date. The checklist below covers what to settle before the first run under the new policy.

If you want help scoping the odometer feed, the two-area register or the reconciliation reports, share your fleet size and current systems through our request for proposal. For related cost and maintenance topics, browse the logistics and supply chain library.