Microsoft Office Tutorials and References
In Depth Information
The SLN function returns the straight-line depreciation of an asset for one
period. This function takes the following arguments:
cost This is the initial cost of the asset.
salvage This is the asset s value at the end of the depreciation
period. Sometimes this is called the salvage valueof the asset.
life This is the number of periods over which the asset is being de-
preciated. Sometimes this is called the useful lifeof the asset.
Using DDB to Calculate Declining-Balance Depreciation
to Calculate Declining-Balance Depreciation
In the declining-balance method, depreciation happens at a constant rate. The
advantage of this method is that more depreciation happens in the earlier
years, providing a better tax benefit in early years.
See Excel Help for this function for details on special handling of
Year 1 and the last year, as well as the algebra behind the rate for-
Let s look at a simple example. Suppose that a $100,000 asset is depreciated
20% in Year 1. This results in a $20,000 depreciation expense. After Year 1,
the asset would have a value of $80,000 on the books. In Year 2, the remain-
ing balance of $80,000 is multiplied by the same 20% rate to yield a depreci-
ation of $16,000. The depreciation in Year 3 is 20% of the remaining $64,000, or
The trick to this method is figuring out the correct percentage to use for each
year. This involves fractional exponents and a little algebra. If you use
the DB function, however, you do not have to worry about any of that. Ex-
cel calculates this rate, rounded to three decimal places, as the first step
in the process. This rounding to three decimal places causes the calculation
to be off by a few dollars at the end of the useful life.
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