Syntax. DDB(Purchase_Value,Residual_Value,Life,Period, Factor)
Definition. This function calculates the depreciation amounts by using a multiple-rate depreciation method.
Arguments
Purchase_Value (required) The purchase cost (net purchase price plus incidental purchase expenses minus reduction of purchase cost) of an asset. If you don’t use a value that can be evaluated as a number, the #VALUE! error is displayed. If the entered number is negative, the #NUMBER! error is displayed.
Residual_Value (required) The value of the asset at the end of the depreciation duration. If you don’t use a number, the #VALUE! error is displayed. If the entered number is negative, the #NUMBER! error is displayed.
Life (required) The number of periods in which the asset is depreciated. You should use an integer greater than zero for this argument.
Period (required) The period within the depreciation duration for which the depreciation amount is calculated. This value must be a positive integer that is not greater than the value of Life.
Factor (optional) The multiplier for the (assumed linear) depreciation rate (reciprocal to the depreciation duration). If this argument is not specified, Excel calculates with the number 2.
Background. Depreciation is used to determine the loss of value of an asset and make that loss visible. It should not be confused with depreciation resulting from abrasion/use, which refers to the cost of purchasing an asset as part of operation expenses from a tax point of view.
The method initially targets linear depreciation. The thus-determined depreciation percentage reciprocal to the depreciation duration is multiplied with an additional factor, however, and is used against the respective book value. This makes it a geometrical depreciation. If the factor used is 2, the process is called the double-declining balance depreciation method.
Example. An asset with a purchase cost of $1,000.00 must be depreciated in five years to a remainder of $100.00 by using the arithmetic-degressive method. You can calculate the depreciation amount in each period by using DDB() and subtracting it from the book value of the previous period.
Alternatively, you can create a depreciation plan that implements the calculation. Creating a depreciation plan following your own pattern is especially recommended if you are using methods that are permitted for taxes, because the integrated functions are generally not usable.