How to Calculate Straight-Line Depreciation Using Microsoft Excel

Video Transcript

"Hi, my name is Dave Andrews. Today, I'm going to show you how to calculate straight line depreciation, using Microsoft Excel. Let's open up Excel. Now, straight line depreciation basically depends upon three values, and that is the purchase value of an asset, the salvage value, which is absolute minimum, that you could sell it for, and the lifetime of that value, or that asset, so I'm just going to type in some data here. Let's say we purchased an object for $10,000 dollars, so that's its original value. It has a salvage value of $300, and let's say it has a lifetime of 5 years, so we're going to calculate the straight line depreciation of this asset, which means over this lifetime, with this salvage value, how is this asset depreciating? What's it going to cost, or what's it going to be worth, in a certain number of years? Let's just enter our years. I'm going to take it out 3 years. Now, the way that you calculate your straight line depreciation, is you run through a formula, which basically takes the current value of the object, subtracts the salvage value, and divides it by the lifetime, so let's start our formula by pressing the equal sign. We're going to click on our current value, which is the purchase value, within the first year. We're going to subtract the salvage value from that. Now, I need to enclose A2 here, and B2, in parenthesis, because I've got to do a divide now, which is a forward leaning slash, in Excel, divided by the lifetime, so let's just hit enter and see what we get. After the first year, that object is going to depreciate by $1940. Let' calculate the current value of that, by doing an equal sign. Our purchase value minus the depreciation value, so it's worth $8000. Let's continue on to the next year. Start a new formula, which equals the opening of parenthesis, the current value, which is the first years depreciated value, minus the salvage value, which is still $300, divided by the lifetime, which is 5 years. As you can see, it's just depreciated another $1552, so let's calculate the existing value after year two, by starting a new formula, equals the previous value, minus the depreciation for this year, so it is now worth $6500. Let's take it out one more year, equals the current value, minus the salvage value, divided by the lifetime. You can see it depreciates another $1200, so our value after 3 years, is equal to the value after 2 years, minus the depreciation in year number 3."