How to calculates deprecation based upon a fixed percentage in Excel Using DB Formula.
Friday, August 5, 2022

How to calculates deprecation based upon a fixed percentage in Excel Using DB Formula.

DB

Learn DB Excel Formula

What Does It Do ?
This function calculates deprecation based upon a fixed percentage.
The first year is depreciated by the fixed percentage.
The second year uses the same percentage, but uses the original value of the item less
the first years depreciation.
Any subsequent years use the same percentage, using the original value of the item less
the depreciation of the previous years.
The percentage used in the depreciation is not set by the user, the function calculates the necessary percentage, which will be vary based upon the values inputted by the user.

An additional feature of this function is the ability to take into account when the item was
originally purchased.
If the item was purchased part way through the financial year, the first years depreciation will be based on the remaining part of the year.

Syntax
=DB(PurchasePrice,SalvageValue,Life,PeriodToCalculate,FirstYearMonth) 
The FirstYearMonth is the month in which the item was purchased during the first financial year. This is an optional value, if it not used the function will assume 12 as the value.

Formatting
No special formatting is needed.

Example 1
This example shows the percentage used in the depreciation.
Year 1 depreciation is based upon the original Purchase Price alone.
Year 2 depreciation is based upon the original Purchase Price minus Year 1 deprecation.
Year 3 deprecation is based upon original Purchase Price minus Year 1 + Year 2 deprecation.
The % Deprc has been calculated purely to demonstrate what % is being used.
DB Excel Formula Example -1

Example 2
This example is similar to the previous, with the exception of the deprecation being calculated on a monthly basis. This has been done by multiplying the years by 12.
DB Example -2


Example 3
This example shows how the length of the first years ownership has been taken into account.
DB Excel Formula Example -3

Why Is The Answer Wrong ?
In all of the examples above the total depreceation may not be exactly the expected value. 100This is due to the way in which the percentage value for the depreceation has been calculated
101 by the =DB() fumction.
102 The percentage rate is calculated by Execl using the formula = 1 - ((salvage / cost) ^ (1 / life)).
103 The result of this calculation is then rounded to three decimal places.
    Although this rounding may only make a minor change to the percentage rate, when applied to large values, the differnce is compounded resulting in what could be considered as approximate values for the the depreceation.

Example 4
This example has been created with both the Excel calculated percentage and the 'real' percentage calculated manually. The Excel Deprecation uses the =DB() function. The Real Deprecation uses a manual calculation.
DB Excel Formula Example -4

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