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By Stephen Nelson
Making financial forecasts or performing investment analyses that needs to include double declining balance depreciation? Microsoft Excel can help. Excel’s DDB, or double declining balance, depreciation function lets you calculate 200% declining balance depreciation.
The DDB function calculates double-declining balance depreciation for an asset given the
cost, its salvage value, estimated economic life, the accounting period for which depreciation is being calculated, and, optionally, the factor at which the balance declines. (If you don’t include the optional factor argument, Excel sets this value to 2 indicating “double” declining balance.) The DDB function uses the following syntax:
DDB (cost, salvage, life, period, factor)
Suppose, for example, that you must calculate the double-declining balance depreciation for
equipment that costs $50,000, lasts five years, and will have a salvage value of $10,000 at
the end of the fifth year. To calculate the depreciation for the first year, you use the following formula:
The function returns the value 20000.00. To calculate the depreciation for the second year,
you use the formula
The function returns the value 12000.00.
NOTE: A common convention when using double-declining balance depreciation is to switch to straight-line depreciation at the point in time when straight depreciation exceeds declining balance depreciation. The DDB function doesn’t make this switch, but the VDB function does. Use it, therefore, if you want to use this convention.
About the author: Seattle CPA Stephen L. Nelson wrote the bestselling book, MBA’s Guide to Microsoft Excel, from which this short article is adapted. Nelson also writes and edits the S Corporations Explained and LLCs Explained websites.
Want to read more about MS Excel tips and tutorials? Visit Hot Excel.