Microsoft Office Tutorials and References
In Depth Information
Depreciation Calculations
Figure 12-20: Monthly returns for a mutual fund.
For the year, this fund returned 37.83%. The formula to calculate the annual return is
=FVSCHEDULE(1,B5:B16)–1
A principal of 1 is used because I’m interested only in the rate of the return, not the actual balance
of the mutual fund. The principal is subtracted from the end, so the result is the increase for only
the year.
Note that the FVSCHEDULE function does not follow the sign convention. It returns a
future value with the same sign as the present value.
Depreciation Calculations
Depreciation is an accounting concept whereby the value of an asset is expensed over time.
Some expenditures affect only the current period and are expensed fully in that period. Other
expenditures, however, affect multiple periods. These expenditures are capitalized (made into an
asset) and depreciated (written off a little each period). A forklift, for example, may be useful for
five years. Expensing the full cost of the forklift in the year it was purchased would not put the
correct cost into the correct years. Instead, the forklift is capitalized and one-fifth of its cost is
expensed in each year of its useful life.
The examples in this section are available on the companion CD-ROM. The workbook is
named depreciation.xlsx .

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