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Calculating Depreciation For Your Investments

by Stephen Nelson, Ste

Excel's VDB function calculates declining balance depreciation for an asset given the cost, its salvage value, estimated economic life, the starting accounting period and the ending accounting period for which depreciation is being calculated, the factor at which the balance declines, and, optionally, a switch-to-straight-line switch which is set to either TRUE or FALSE. If you set this switch to TRUE, Excel doesn't switch to straight-line at the point when straight-line depreciation exceeds declining balance depreciation. If you set this value to FALSE, Excel does switch to straight-line. If you don't set the optional switch-to-straightline switch to TRUE, Excel sets this value to FALSE.

Note: By default, US tax laws do convert to straightline depreciation at the point that straightline depreciation exceeds declining balance deprecation. But back to the mechanics of the VBD function...

The VDB function uses the following syntax:

VBD(cost,salvage,life,start-period,end-period,factor,switch)

Suppose, for example, that you must calculate 150% declining balance depreciation for equipment that costs $50,000, lasts five years, and will have a salvage value of $10,000 at the end of the fifth year. To calculate the depreciation for the first year, you use the following formula:

= VBD(50000,10000,5,0,1,150%)

The function returns the value 15000.00. Notice that to calculate depreciation for the first year, you set the start period to 0 and the end period to 1. To calculate the depreciation for the second year, you use the formula

= VBD(50000,10000,5,1,2,150%)

The function returns the value 10500.00. Notice that to calculate the depreciation for the second year, you set the start period to 1 and the end period to 2.

In both of the two preceding examples, Excel will automatically switch to straight-line depreciation at the point when straight-line depreciation for a period exceeds declining balance depreciation. To instruct Excel not to make this switch, you would use the following formula to calculate depreciation for the first year:

- VBD(50000,10000,5,0,1,150%,TRUE)

The word TRUE, which Excel interprets as 1, tells Excel not to switch to straight-line. To
instruct Excel not to make this switch in the second year, you would use the following formula to calculate depreciation:

= VBD(50000,10000,5,1,2,150%,TRUE)

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