Logistics: fleet costs and fuel

Ridgeway Haulage runs 30 trucks and 45 trailers moving goods for supermarkets and builders' merchants. Its biggest costs are its vehicles and the fuel they burn, so the fleet accounting decides whether its margins are reported correctly.

1. Depreciation by usage and by component. A truck's wear depends on kilometres driven, not on the calendar, so Ridgeway uses the units-of-production method (IAS 16.62). Parts of an asset with different lives are depreciated separately (IAS 16.43–44): a truck's tyres last about 120,000 km, while the chassis and engine last 750,000 km. When tyres are replaced, the new set is capitalised and the old set's remaining carrying amount is derecognised. The method and estimates are reviewed at least each year end; changes are prospective changes in estimate.

2. Fuel cards. Drivers buy fuel with company cards. Ridgeway's cards are prepaid: it tops up the card account in advance (a prepayment) and the monthly statement shows what was used. For a haulier, fuel is a direct cost of the service it sells, so it's part of cost of sales. Fuel cards need controls: statements are matched to vehicle registrations and odometer readings, and any personal fuel a driver buys is recovered from that driver, not expensed.

3. Leased vehicles. Ridgeway leases many trailers. Under IFRS 16 a lessee recognises a right-of-use asset and a lease liability for each lease, measured at the present value of the lease payments (IFRS 16.22–26). The liability accrues interest; the asset is depreciated. Leases of 12 months or less (with no purchase option) may be expensed straight-line instead (IFRS 16.5–8) — useful for seasonal truck hire.

4. Repairs or capital? Routine servicing keeps a vehicle running as expected: expense it (IAS 16.12). Spending that replaces a component or extends the asset's life or capacity is capitalised.