Excel DDB Function

The Excel DDB function has the syntax shown below.

DDB (cost, salvage, life, period, factor)
Arguments used in the Excel DDB function
Cost = The initial cost of the asset
Salvage = The salvage or residual value of the asset
Life = The useful life of the asset
Period = The accounting period the depreciation is required for
Factor = The rate at which the balance declines

Use of the Excel DDB Function

The Excel DDB function is used to calculate the declining balance depreciation of a long term asset based on a multiple of the straight line rate.

Declining Balance Depreciation DDB Function Example

If a business purchases an asset costing 8,000 which is estimated to have a useful life of 4 years and a salvage value of 700, then the declining balance depreciation for period 1 based on the straight line rate, is calculated using the Excel DDB function as follows:

Cost = 8,000
Salvage = 700
Life = 4 years
Period = 1
Factor = 1 (straight line rate)
Depreciation = DDB (cost, salvage, life, period, factor)
Depreciation = DDB (8000,700,4,1,1)
Depreciation = 2,000

In this example, the depreciation was required for period 1, if the depreciation had been required for period 3, then the period value would be set to 3 as follows:

Cost = 8,000
Salvage = 700
Life = 4 years
Period = 3
Factor = 1
Depreciation = DDB (cost, salvage, life, period, factor)
Depreciation = DDB (8000,700,4,3,1)
Depreciation = 1,125

Double Declining Balance Depreciation DDB Function Example

In the above example, the declining balance depreciation based on the straight line rate is required so the factor argument is set to 1. If the Double declining balance depreciation based on twice the straight line rate had been required, then the factor would be set to 2, as follows:

Cost = 8,000
Salvage = 700
Life = 4 years
Period = 1
Factor = 2
Depreciation = DDB (cost, salvage, life, period, factor)
Depreciation = DDB (8000,700,4,1,2)
Depreciation = 4,000

It should be noted that while the most commonly used settings for the factor argument are either 1, for declining balance depreciation or 2 for double declining balance depreciation, the factor can in fact be set to any multiple of the straight line rate to change the rate of depreciation.

Using the Excel DDB Function for Monthly Periods

In the above example the Excel DDB function was used to calculate the annual depreciation. The function could equally well be used to calculate the monthly depreciation by defining the life in terms of months instead of years.

Suppose for example, the business purchased an asset costing 5,000 with an estimated salvage value of 800 and a useful life of 30 months, then using the Excel DDB function the declining balance depreciation for say month 11, is calculated as follows:

Cost = 5,000
Salvage = 700
Life = 30 months
Period = 11
Factor = 1
Depreciation = DDB (cost, salvage, life, period, factor)
Depreciation = DDB (8000,700,30,11,1)
Depreciation = 119

The declining balance depreciation for period 11 is calculated as 119 a month.

The Excel DDB function is one of many Excel finance functions used in financial calculations, discover another at the links below.

Excel DDB Function November 6th, 2016Team

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