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.