Microsoft Office Tutorials and References

In Depth Information

**Examples of Depreciation Functions**

The nperyargument is truncated to an integer. If either argument is nonnumeric,

NOMINAL returns a #VALUE! error. If effect_rateis less than or equal to 0

or if nperyis less than 1, NOMINAL returns a #NUM! error.

Examples of Depreciation Functions

When a company buys a large asset such as a piece of machinery, accounting

rules specify how the asset should be expensed each year. This is called de-

preciation. Excel offers four common methods for calculating depreciation:

straight-line, declining-balance, double-declining-balance, and sum-of-

years
’
-digits methods.

The following terms are common to all the depreciation methods:

•
Cost

Cost
—
This is the initial cost of the asset. For example, the ma-

chinery might cost $120,000.

•
Useful life

Useful life
—
This is how long you expect to use the asset. If you

think you will use the machinery for 10 years before replacing it, the

life is 10 years.

•
Salvage value

Salvage value
—
This is the value of the asset at the end of the use-

ful life. Perhaps after 10 years, you can sell the machine to a scrap

dealer for $1,000 or to a trade school for $5,000. This is the salvage

value.

Figure 13.10
compares the four depreciation methods.