Microsoft Office Tutorials and References

In Depth Information

**Using DDB to Calculate Double-Declining-Balance Depreciation**

The DB function returns the depreciation of an asset for a specified period,

using the fixed-declining-balance method. This function takes the following

arguments:

•
cost

cost
—
This is the initial cost of the asset.

•
salvage

salvage
—
This is the value at the end of the depreciation period. So-

metimes this is called the salvage valueof the asset.

•
life

life
—
This is the number of periods over which the asset is being de-

preciated. Sometimes this is called the useful lifeof the asset.

•
period

period
—
This is the period for which you want to calculate the de-

preciation. periodmust use the same units as life.

•
month

month
—
This is the number of months in the first year. If monthis

omitted, it is assumed to be 12.

Using

Using
DDB

to Calculate Double-Declining-Balance Depreciation

The double-declining-balance method is an aggressive (and legal) method for

calculating depreciation. Suppose you purchase a computer. In the first

year, the item might be state-of-the-art. By Year 2, it is worth far less be-

cause technology would have passed the computer by.

The name of this method reflects the fact that the depreciation rate is double

the normal rate but also that the depreciation rate is applied to the declining

balance of the asset
’
s value.

If the asset is depreciated over five years, the normal straight-line rate

would be 20%. In the double-declining-balance method, you get to use 40%

in each year. For example, the first year, depreciation on a $100,000 asset

would be 40%. But in Year 2, the 40% is multiplied by the remaining asset

value of $60,000. This method generates much higher depreciation in the first

few years of the asset life than the other methods.

DDB
to Calculate Double-Declining-Balance Depreciation

Note

In many depreciation systems, you are allowed to switch from double-

declining-balance to the straight-line method when the straight-line

method produces a higher depreciation. To do this, use the VDB function,

which is described later in this chapter.