How to Use Excel's DB Function

Excel's DB (short for declining balance) function calculates an asset's depreciation over a period of time by using the fixed-declining balance method. This method assumes that the asset depreciates at a fixed rate.

Difficulty: Moderate

Instructions

1. Learn the syntax of DB. It is DB(cost,salvage_value,lifetime,period,[month]) where cost is the asset's initial value, salvage_value is the asset's final value, lifetime (sometimes called the asset's useful life) is the number of periods over which the asset will be depreciated and period is the time for which the depreciation will be calculated.

2. Include month as an optional argument to indicate the number of months remaining in the first year. The default value is 12.

3. Check the result of DB by calculating the depreciation for all but the first and last periods:
   
   (cost - total depreciation from the previous periods) * (1 - ((salvage_value / cost) ^ (1 / lifetime))). This result is rounded to three decimal places.

4. Calculate the depreciation for the first period as cost * (1 - ((salvage_value / cost) ^ (1 / lifetime))) * month / 12.

5. Compute the depreciation for the last period as: ((cost - total depreciation from previous periods) * (1 - ((salvage_value / cost) ^ (1 / lifetime))) * (12 - month)) / 12.

6. Look at some examples of DB: =DB(1000000,100000,5,3,6) returns 189,880.20. This formula computes the depreciation in the third year of an asset valued at $1 million with a salvage value of $100,000, a useful life of five years and six months remaining in the first year. Note that the depreciation for each year must be computed in order up to and including the year given by period.

Resources

• Learn more about Excel's DB function.