The Excel DDB function has the syntax shown below.
DDB (cost, salvage, life, period, factor)
Cost = The initial cost of the asset
Salvage = The salvage or residual value of the asset
Life = The useful life of the asset
Period = The accounting period the depreciation is required for
Factor = The rate at which the balance declines
Use of the Excel DDB Function
The Excel DDB function is used to calculate the declining balance depreciation of a long term asset based on a multiple of the straight line rate.
Declining Balance Depreciation DDB Function Example
If a business purchases an asset costing 8,000 which is estimated to have a useful life of 4 years and a salvage value of 700, then the declining balance depreciation for period 1 based on the straight line rate, is calculated using the Excel DDB function as follows:
Cost = 8,000 Salvage = 700 Life = 4 years Period = 1 Factor = 1 (straight line rate) Depreciation = DDB (cost, salvage, life, period, factor) Depreciation = DDB (8000,700,4,1,1) Depreciation = 2,000
In this example, the depreciation was required for period 1, if the depreciation had been required for period 3, then the period value would be set to 3 as follows:
Cost = 8,000 Salvage = 700 Life = 4 years Period = 3 Factor = 1 Depreciation = DDB (cost, salvage, life, period, factor) Depreciation = DDB (8000,700,4,3,1) Depreciation = 1,125
Double Declining Balance Depreciation DDB Function Example
In the above example, the declining balance depreciation based on the straight line rate is required so the factor argument is set to 1. If the Double declining balance depreciation based on twice the straight line rate had been required, then the factor would be set to 2, as follows:
Cost = 8,000 Salvage = 700 Life = 4 years Period = 1 Factor = 2 Depreciation = DDB (cost, salvage, life, period, factor) Depreciation = DDB (8000,700,4,1,2) Depreciation = 4,000
It should be noted that while the most commonly used settings for the factor argument are either 1, for declining balance depreciation or 2 for double declining balance depreciation, the factor can in fact be set to any multiple of the straight line rate to change the rate of depreciation.
Using the Excel DDB Function for Monthly Periods
In the above example the Excel DDB function was used to calculate the annual depreciation. The function could equally well be used to calculate the monthly depreciation by defining the life in terms of months instead of years.
Suppose for example, the business purchased an asset costing 5,000 with an estimated salvage value of 800 and a useful life of 30 months, then using the Excel DDB function the declining balance depreciation for say month 11, is calculated as follows:
Cost = 5,000 Salvage = 700 Life = 30 months Period = 11 Factor = 1 Depreciation = DDB (cost, salvage, life, period, factor) Depreciation = DDB (8000,700,30,11,1) Depreciation = 119
The declining balance depreciation for period 11 is calculated as 119 a month.
The Excel DDB function is one of many Excel finance functions used in financial calculations, discover another at the links below.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.