Friday, 25 November 2011 10:16

## Examples of Depreciation Functions

Written by  Harshit Rastogi
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Depreciation functions deal with assets whose value decreases over time. In this article, I'll show you how to make use of one of the most common depreciation functions made available in the Microsoft Excel 2010.

## Calculating straight line depreciation

Straight line depreciation of an asset value is the decrease in its value at a constant rate. Steps to calculate straight line depreciation using MS Excel have been listed below:

1. Initially we need to determine the cost of the product acquisition, which is essentially the initial cost of the product.
2. Second input has to be the period during which the depreciation is happening.
3. The third input is the salvage value of the asset in question.
4. We need to open an Excel sheet and enter the value that we get from the above stated steps. We also need to label each row and column respectively. This is shown in the screenshot below.

5. The built in function for straight line depreciation function is =SLN() in Excel. To input the function, you can also use the Formula tab.

6. Enter the appropriate function parameters as shown in the screenshot below.

7. Press 'Ok' to get result.

## Declining balance depreciation

The declining balance depreciation method is generally used when an individual is advised by the tax counselor to implement declining balance convention for the sake of tax accounting. A starter workbook in MS Excel can be used for the above mentioned calculation in the following way:

1. The four inputs namely original cost, salvage value, estimated life period and month should be mentioned. The excel spreadsheet also contain the value or the data of the above mentioned particulars. Also note that depreciation this way is calculated using a fixed rate, that Excel evaluates based on the input values.
2. He above mentioned particulars for instance should run from cell B2 through cell B6 as shown in the screenshot below.

3. Finally, the formula stated below can be used to calculate the declining depreciation after every period: =DB (cost, salvage, life, period, month)

4. To get the desired value and result of every period, appropriate data or information should be put in the respective cell number.

## Double declining balance depreciation

It is indeed an easy task to calculate double declining using MS Excel. In double declining method, the depreciation is calculated at twice the rate of straight line depreciation function. To learn how to use this function in Excel 2010, follow the simple steps below.

1. The four variables the function "=DDB()" uses are cost, salvage, period and life. You can adjust the factor too, but if you don't, the default is taken as 2.

• Cost = The term refers to the exact value of the asset.
• Salvage = Refers to the cost of the asset after its functional life gets over.
• Life= Refers to the duration for which the asset can work.
• Period= It refers to the time or the period we want the value for
• Factor= At which the balance declines. Default value is 2.

2. Finally, the above stated particulars should be entered into an excel worksheet with the appropriate data and the following formula should be implemented to get the desired result : = DDB ( Cost, Salvage, Period, Life, [ Factor ] )

## Sum-of-years of digits depreciation

As far as depreciation is concerned, it is taken as a fractional part for the sum of all the years. For instance, if the life of an asset is 5 years, then the method to be followed is 1+2+3+4+5= 15, which is called the sum of years. Basically, the user does not need to calculate or add up all the years as the procedure can be simplified with the following formula: (Life* (Life +1)) /2.

For all the individuals who would be implementing the excel worksheet, the following method needs to used: =SYD (cost, salvage, life, per). The above mentioned formula will help the user to achieve the desired result in excel, if the value have been inserted correctly. "Per" in the formula refers the period for which the formula is to be calculated. An example is shown in the following screenshot: