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In this course, author Curt Frye shows how to perform a wide range of financial calculations quickly and easily using the many financial functions found in Excel 2010. The course details dozens of functions for evaluating cash flows; calculating depreciation; determining rates of return, bond coupon dates, and security durations; and more.
Different countries have different methods of calculating depreciation. Excel includes the AMORDEGRC function for use with French accounting rules. In this case you can assign the depreciation coefficient based on the economic life of an asset. So for this function we have the cost argument and that is simply the cost and because we're using French accounting rules I have the currency denomination as Euros. Then we need to know the date the asset was purchased, the end of the first period, then the salvage value in this case 10,000 Euros.
The period for which we're calculating our depreciation, and then the rate, and the rate is something that your accountant will know based on the economic life of the asset. There is a table that's published where you can look at that. And then finally we have the basis, and the basis is how you count days and months in a year. So for example in the US, investment banks typically use a 30-day month and 12 months a year or 360 day a year. In this case option number four is the European method so I've used that as the value for the basis argument.
And with all those arguments in place we can create our formula. So I'll type equal and then the function is AMORDEGRC, left parentheses, and then we have the cost which is in C3, type a comma, the date purchased is in C4, comma, first period, which is again the end of the first depreciation period that's in cell C5. Salvage value is in C6. The period for which we're calculating depreciation is in cell C7, then type a comma, and the rate is in cell C8, comma, and then the basis is in cell C9.
Then we type right parentheses, verify that all of the arguments look to be correct, I believe they are, and then press Tab. When we do, we see that the depreciation for the first year is 31,276 Euros. Now if we change the period to 2 for the second year by typing 2 in cell C7 and then Enter, we see that the depreciation goes down to about 23,500 Euros. When you calculate depreciation, be sure you know which set of rules you're using. If you operate under the French system, you'll probably find that the AMORDEGRC function to be useful.
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