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Excel 2010: Financial Functions in Depth

DB: Calculating depreciation using the declining balance method


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Excel 2010: Financial Functions in Depth

with Curt Frye

Video: DB: Calculating depreciation using the declining balance method

The declining balance method of calculating depreciation accelerates the rate at which an asset loses its value over time. You use the DB function to calculate depreciation with the declining balance method in Excel. The declining balance method is so named because it reduces an asset's value by the amount it depreciated in the previous years. You then calculate the new depreciation based on that lower value, hence the name declining balance method. The DB function has four arguments. Cost, salvage value, economic life and period.
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  1. 2m 11s
    1. Welcome
      1m 6s
    2. Using the exercise files
      36s
    3. Disclaimer
      29s
  2. 28m 32s
    1. PMT: Calculating a loan payment
      3m 31s
    2. PPMT and IPMT: Calculating principal and interest per loan payment
      4m 18s
    3. CUMPRINC and CUMIPMT: Calculating cumulative principal and interest paid between periods
      4m 30s
    4. ISPMT: Calculating interest paid during a specific period
      2m 13s
    5. EFFECT and NOMINAL: Finding nominal and effective interest rates
      3m 31s
    6. ACCRINT and ACCRINTM: Calculating accrued interest for investments
      4m 15s
    7. RATE: Discovering the interest rate of an annuity
      2m 41s
    8. NPER: Calculating the number of periods in an investment
      3m 33s
  3. 19m 5s
    1. SLN: Calculating depreciation using the straight-line method
      1m 48s
    2. DB: Calculating depreciation using the declining balance method
      3m 10s
    3. DDB: Calculating depreciation using the double-declining balance method
      3m 20s
    4. SYD: Calculating depreciation for a specified period
      2m 13s
    5. VDB: Calculating declining balance depreciation for a partial period
      3m 24s
    6. AMORDEGRC: Calculating depreciation using a depreciation coefficient
      2m 27s
    7. AMORLINC: Calculating depreciation for each accounting period
      2m 43s
  4. 22m 33s
    1. FV: Calculating the future value of an investment
      2m 48s
    2. FVSCHEDULE: Calculating the future value of an investment with variable returns
      2m 21s
    3. PV: Calculating the present value of an investment
      2m 6s
    4. NPV: Calculating the net present value of an investment
      3m 17s
    5. IRR: Calculating internal rate of return
      2m 33s
    6. XNPV: Calculating net present value given irregular inputs
      2m 32s
    7. XIRR: Calculating internal rate of return for irregular cash flows
      1m 48s
    8. MIRR: Calculating internal rate of return for mixed cash flows
      2m 2s
    9. DISC: Calculating the discount rate of a security
      3m 6s
  5. 24m 12s
    1. COUPDAYBS: Calculating total days between coupon beginning and settlement
      3m 2s
    2. COUPDAYS: Calculating days in the settlement date's coupon period
      2m 48s
    3. COUPDAYSNC: Calculating days from the settlement date to the next coupon date
      3m 1s
    4. COUPNCD: Calculating the next coupon date after the settlement date
      2m 43s
    5. COUPNUM: Calculating the number of coupons between settlement and maturity
      2m 55s
    6. COUPPCD: Calculating the date of a coupon due immediately before settlement
      3m 4s
    7. DURATION: Calculating the annual duration of a security
      3m 20s
    8. MDURATION: Calculating the duration of a security using the modified Macauley method
      3m 19s
  6. 28m 43s
    1. DOLLARDE and DOLLARFR: Converting between fractional prices and decimal prices
      2m 36s
    2. INTRATE: Calculating the interest rate of a fully invested security
      2m 50s
    3. RECEIVED: Calculating the value at maturity of a fully invested security
      2m 46s
    4. PRICE: Calculating the price of a security that pays periodic interest
      3m 19s
    5. PRICEDISC: Calculating the price of a discounted security
      2m 48s
    6. PRICEMAT: Calculating the price of a security that pays interest at maturity
      1m 57s
    7. TBILLEQ: Calculating the bond-equivalent yield for a Treasury bill
      1m 50s
    8. TBILLPRICE: Calculating the price for a Treasury bill
      1m 31s
    9. TBILLYIELD: Calculating the yield of a Treasury bill
      1m 41s
    10. YIELD: Calculating the yield of a security that pays periodic interest
      2m 59s
    11. YIELDDISC: Calculating the annual yield for a discounted security
      2m 9s
    12. YIELDMAT: Calculating the annual yield of a security that pays interest at maturity
      2m 17s
  7. 12m 1s
    1. ODDFPRICE: Calculating the price of a security with an odd first period
      3m 17s
    2. ODDFYIELD: Calculating the yield of a security with an odd first period
      3m 3s
    3. ODDLPRICE: Calculating the price of a security with an odd last period
      2m 44s
    4. ODDLYIELD: Calculating the yield of a security with an odd last period
      2m 57s
  8. 1m 5s
    1. Additional resources
      1m 5s

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Excel 2010: Financial Functions in Depth
2h 18m Intermediate Jun 28, 2011

Viewers: in countries Watching now:

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.

Topics include:
  • Analyzing loans, payments, and interest
  • Discovering the interest rate of an annuity
  • Determining depreciation using the straight line, declining balance, double-declining balance, and other methods
  • Calculating the future value of an investment with variable returns
  • Finding the discount rate of a security
  • Converting between fractional prices and decimal prices
  • Determining the yield of securities that pay interest periodically
Subjects:
Business Finance
Software:
Excel Office
Author:
Curt Frye

DB: Calculating depreciation using the declining balance method

The declining balance method of calculating depreciation accelerates the rate at which an asset loses its value over time. You use the DB function to calculate depreciation with the declining balance method in Excel. The declining balance method is so named because it reduces an asset's value by the amount it depreciated in the previous years. You then calculate the new depreciation based on that lower value, hence the name declining balance method. The DB function has four arguments. Cost, salvage value, economic life and period.

The Cost, which is in cell B7, is what you pay for the asset. The Salvage Value, which is in cell B9, is what you can sell the asset for as scrap. And then next we have the Economic Life, which in this case is assumed to be 7 years. And then you have the Period and that is the year in the depreciation schedule and I have a series of those years set up here in cells D6 through D12. So I'll be calculating depreciation for years 1 through 7. There is one final argument and that is whether you're going monthly or yearly.

Almost every asset you deal with will depreciate over years instead of months. So I've decided to stay with years for this example. Now I'll create my first formula and to do that I'll click in cell E6 and then type an =db, to start entering formula using the Declining Balance function. Type a left parenthesis and then we have the cost that's in b7, type a comma, then the salvage value that's in b9, the economic life in years and that is in cell b11, then a comma, and the period.

Now the first period is in cell D6, so that is the first year. So type d6. Now what's going to happen when I press Enter to put this formula into this table cell is that Excel will copy it down to the rest of the cells in a table column. When it does that, the references to cells B7, B9, and B11 will change because they are currently relative references. However, there aren't other values here in the side of the worksheet. I want those references to stay the same. So I need to convert those cell references to absolute values as opposed to relative values.

And to do that in the formula, I click in the cell reference that I want to make absolute and then press F4. That changes the reference from a relative reference to an absolute reference. Then I do the same thing for B9, click inside of it in the formula and then press F4 and the same for B11. Click inside of its reference and then press F4. Now D6 which is the cell here for the year, I do want to change because as it copies down I want to look to D7, then D8, then D9 and so on.

So with those changes in place I'll click to the right of the D6 reference, then type a right parenthesis and press Enter. And when I do, Excel fills in my table. I now have depreciation for years 1 through 7. The declining balance depreciation method enables companies to capture more depreciation benefits early in an asset's economic life, decreasing tax payments and thereby freeing up capital to invest in other areas.

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