Bike Depreciation Rate: How to Calculate, Formula, Examples

The moment you ride your bike off the showroom floor, its value starts to drop. This decreasing cost is called depreciation, which not only affects your vehicle’s resale value but also the insurance claim amount. If you are planning to sell your bike or renew your two wheeler insurance, knowing how the bike depreciation rate works is a must.

Understanding why it matters in determining the insured declared value (IDV) and how it is calculated can help you choose the right coverage and enable you to sell it at the best rate without getting tricked.

What is depreciation rate for bikes?

The depreciation rate of bikes refers to the decrease in percentage in your two-wheeler’s value with each passing year. The reduction is determined by several factors. The bike’s age tops the list, followed by its mileage, maintenance history, claim history, climatic condition and market demand.

The bike’s condition also matters. Scratches, dents and mechanical issues accelerate depreciation. Meanwhile, regular servicing and careful handling can slow down the process.

Depreciation rate for bikes as per the Companies Act

The Companies Act, 2013 have standardised the depreciation rate for bikes that businesses can easily use for their accounting purposes.

Here’s a summary of the rules:

• As per Schedule II of the Companies Act, the useful life of a motorcycle, scooter or moped is 10 years.
• The straight-line depreciation rate is 9.5% per year for these vehicles.
• In the straight-line method (SLM), you subtract the same amount each year throughout the bike’s useful life.
• For bikes and scooters used in business, the depreciation is charged under the Written Down Value (WDV) method.
• The WDV depreciation rate is calculated at 25.89% annually. This percentage is from Companies Act Schedule II for accounting purposes, not an insurance rule. Insurance companies use their own depreciation schedules per IRDAI.
• In the WDV method, you calculate the depreciation value on the original cost in the first year. From the second year onwards, it’s calculated on the reduced value after each year.

Significance of insured declared value (IDV)

The IDV is your bike’s current market value, or the maximum amount your insurer will pay if someone steals your bike or it's damaged beyond repair. When you renew your own damage (OD) or comprehensive bike insurance policy, the insurer calculates the premium based on the updated IDV, which is revised each year as the bike depreciates.

Here’s a general idea of how depreciation affects your bike’s IDV:

Depreciation rate of bikes after 5 years

The depreciation rate on bikes after five years is not fixed by a standard percentage. Instead, it is decided by mutual agreement between you and the insurer, based on your bike’s condition, usage,and current market value.

Insurers may inspect your bike or request recent service records to assess its condition. While older bikes often have lower premiums, mechanical condition matters more than age. Popular, premium, sports and limited-edition models typically retain better value. However, after-market modifications are usually excluded from coverage.

How to calculate bike depreciation?

Bike depreciation is calculated using a simple formula: start with the current ex-showroom price (excluding taxes and registration), apply the depreciation rate based on the bike’s age and subtract this depreciation value from the ex-showroom price to determine the Insured Declared Value (IDV).

Let’s say your bike was bought for ₹100,000 (ex-showroom) and is now 3 years old. Based on the table, depreciation is 40%. Therefore, the current value is calculated as:

• Depreciation amount: ₹1,00,000 x 40% (1,00,000 X 40 /100) = ₹40,000
• IDV/ current value: ₹1,00,000 - ₹40,000 = ₹60,000

Depreciation rate formula for bikes

The depreciation rate on bike is calculated using a simple formula. You can use this formula every year to estimate your bike’s value.

Formula for calculating IDV:

IDV = Ex-showroom price – (Ex-showroom price x Depreciation Rate)

Or

IDV = Current Market Value – Depreciation Value

Here’s another example:

• Ex-showroom price: ₹1,20,000
• Age: 2 years
• Depreciation: 20%
• IDV = ₹1,20,000 - (20% of ₹1,20,000) = ₹96,000

Conclusion

Depreciation affects every two-wheeler in India, regardless of the type, modifications made or insurance plan.

By understanding the different motorbike depreciation rates and knowing the right formula for calculating IDV, you can make better choices when buying, selling or insuring your bike.

A smart way to stay protected financially is to choose comprehensive bike insurance with a properly evaluated IDV. Only a comprehensive plan will cover you from all unforeseen incidents, including accidental damage and injury, theft, total loss, natural disasters, man-made offences and fire.

FAQs

• Does the third-party insurance premium amount change with IDV?

No. Third-party premiums are fixed by IRDAI and stay the same regardless of your vehicle’s IDV.

• Can I voluntarily increase the IDV of my bike?

While you can opt for a higher IDV, it will increase your premium. However, the insurance company may not accept your application if the chosen IDV is much higher than the market value.

• How can I reduce the depreciation on my bike naturally?

You can reduce depreciation value by servicing your bike regularly, maintaining it well, using genuine parts, avoiding claims and riding safely. Also, adding a zero-depreciation cover will further help.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the topic featured in the article. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.