Microsoft Office Tutorials and References

In Depth Information

**Depreciating the Finer Things in Life**

As shown in Figure 6-2 earlier, the Double Declining Balance method provides

an even more accelerated depreciation schedule than the Sum of Years’

Digits method. In fact, the depreciation is fully accounted for before the asset

has reached the end of its life.

Here’s how to use the DDB function to calculate the depreciation for one

period:

1. Enter three values in a worksheet:

•Costofanasset

•Salvagevalue(alwayslessthantheoriginalcost)

•Numberofperiodsinthelifeoftheasset(usuallyanumberof

years)

2. Enter
=DDB(
to begin the function entry.

3. Click the cell that has the original cost, or enter its address.

4. Enter a comma (
,).

5. Click the cell that has the salvage amount, or enter its address.

6. Enter a comma (
,).

7. Click the cell that has the number of periods.

8. Enter a comma (
,).

9. Enter a number for the period for which to calculate the depreciation.

10. If a variation on the Double Declining Balance method is desired, then

enter a comma (
,) and a numeric value other than 2.

11. Type a
), and press the Enter key.

The returned value is the amount of depreciation for the entered period. To

calculate the depreciation for the entire set of periods, you need to enter a

formula with the DDB function into the same number of cells as there are

periods. In this case, each cell would have a different period entered for the

fourth argument. One of the best approaches is to use absolute addressing

for the first three function arguments. Then, when filling the rest of the cells

by dragging or copying, the reference to original cost, salvage amount, and

number of periods will stay constant. You can see an example of absolute

addressing in the Formula Bar shown in Figure 6-2.

There is no hard-and-fast rule for selecting the best depreciation method.

However, it makes sense to use one that matches the depreciating value of the

asset. For example, cars lose a good deal of their value in the first few years,

so applying an accelerated depreciation schedule makes sense.