The DB (Declining Balance) function in Excel is used to calculate the depreciation of an asset for a specified period using the fixed-declining balance method. This method accelerates the depreciation, meaning that the asset depreciates more in the earlier years of its useful life compared to later years. The DB function is commonly used in financial accounting to model depreciation of assets like machinery, vehicles, and equipment.
Syntax
| Formula | Description |
|---|---|
| =DB(cost, salvage, life, period, [month]) | Calculates the depreciation of an asset for a specified period using the declining balance method. |
- cost: The initial cost of the asset.
- salvage: The value of the asset at the end of its useful life (also known as the salvage value).
- life: The number of periods (typically years) over which the asset is depreciated.
- period: The specific period for which you want to calculate the depreciation.
- [month]: An optional argument that specifies the number of months in the first year. If omitted, it is assumed to be 12.
Example
Let’s consider a scenario where a company purchases a machine for $100,000. The machine has a salvage value of $10,000 and is expected to last for 5 years. We want to calculate the depreciation for the second year using the DB function.
| Input | Value |
|---|---|
| Cost of Asset (cost) | $100,000 |
| Salvage Value (salvage) | $10,000 |
| Useful Life (life) | 5 years |
| Period (period) | 2 (second year) |
To calculate the depreciation for the second year, use the following formula:
=DB(100000, 10000, 5, 2)This formula calculates the depreciation for the second year using the declining balance method.
Practice Exercise 1
Task: Calculate the depreciation for the third year of a vehicle purchased for $60,000, with a salvage value of $5,000 and a useful life of 8 years. Use the declining balance method.
Hint: Ensure that you input the correct period for which you want to calculate the depreciation. The period should correspond to the year you are interested in.
Practice Exercise 2
Task: Calculate the depreciation for the first year of an office building purchased for $500,000, with a salvage value of $50,000 and a useful life of 20 years. Assume that the first year has only 6 months of usage.
Hint: Don’t forget to use the optional [month] argument in the DB function to account for the partial first year.
Solution for Exercise 1:
=DB(60000, 5000, 8, 3)Explanation: This formula calculates the depreciation for the third year using the declining balance method. The calculation takes into account the initial cost, salvage value, useful life, and the specific period (third year) to determine the depreciation amount.
Solution for Exercise 2:
=DB(500000, 50000, 20, 1, 6)Explanation: This formula calculates the depreciation for the first year with only 6 months of usage. The DB function considers the shorter first year and calculates the depreciation accordingly, using the cost, salvage value, useful life, and the specified number of months in the first year.