walkitout (walkitout) wrote,

tsk, tsk: that's not very honest

There's a box in Alvord's _Divorce Your Car!_ with a worksheet to help you calculate how much your car is costing you every year. Conveniently, someone has reproduced it online:


(H/T I love google. That was item 7 when I searched on Alvord divorce depreciation)

Item A on the list has as the first two components:

Yearly cost of car purchase (monthly payments x 12 OR Purchase price divided by years owned)

Annual depreciation (ten percent of purchase price)

I don't know much about accounting, but I _can_ recognize when someone has included something twice in a list. Given that depreciation of a vehicle is typically one of the most, if not the most, if not the majority of the annual cost of owning and running a car, doubling this one item will produce a really distorted idea of what it costs to run the car.

On top of that, there are niggling issues with any of these three ways of accounting for the capital cost of the car. (1) If you lease the car, you would need to include the lease payments for the year, plus you'd probably need to capture some element of what you might have to pony up at end of lease because, say, your mileage was too high. (2) Monthly payments treat the car as free once you have finished paying for it (which may or may not make sense). (3) 10% straight line depreciation treats a car as free after 10 years. (4) If you want this to reflect market value of your car, you should probably use an accelerated depreciation schedule. (5) The number of years you take depreciation should probably also reflect expected lifespan of the vehicle, which may vary a lot depending on other factors (like, how old was it when you bought it).

The way she has structured this, if you paid cash for a 10 year old car, the first year you owned it would cost you 110% of whatever you paid for it, just for the first two entries of A. Does that seem right to you?


Interestingly enough, over on bikeforums there's some criticisms of a different author's directions for calculating cost of a leased car.


Bizarrely, the criticism revolves around the time value of money, which I have yet to see show up in a depreciation analysis. Ever.

ETAYA: bigmieux's comment is actually quite to the point, both regarding Balish (the other author), Alvord and what the other silly folk on the thread were saying.

And finally, this is what comes of confusing an income statement with a balance sheet, when really, all you are doing is cash accounting anyway.
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