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
cost — This is the initial cost of the asset.
salvage — This is the value at the end of the depreciation period. So-
metimes 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.
period — This is the period for which you want to calculate the de-
preciation. periodmust use the same units as life.
month — This is the number of months in the first year. If monthis
omitted, it is assumed to be 12.
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
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.