DB Function

In this article we will discuss about DB Function, another financial function in Microsoft Excel.

Here 'DB' is not referring to Database, it is Depreciation in accounting. 

DB function  returns the depreciation of an asset for a given time period based on the fixed-declining balance method.

Before discussing DB Function let us first understand what is depreciation and how many types of depreciation in accounting.

What is Depreciation ?

By definition, 'Depreciation' is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value.

In simpler language 'Depreciation' is the value of an tangible asset after wear and tear.

What Are the Main Types of Depreciation Methods?

There are several types of depreciation expense and different formulas for determining the book value of an asset. The most common depreciation methods are...

1.   Straight-line (Its very simple in calculation, a fixed amount will be deducted every year till the 'Life')

2.   Fixed declining balance

3.   Double declining balance

4.   Units of production

5.   Sum of years digits

In this article we will discuss about Fixed Declining Balance method.

Syntax

The syntax for the DB function in Microsoft Excel is as under

=DB(cost, salvage, life, period, [number_months])

Parameters or Arguments

cost

The original cost of the asset.

salvage

The salvage value after the asset has been fully depreciated.

life

The useful life of the asset or the number of periods that you will be depreciating the asset.

period

The period that you wish to calculate the depreciation for. Use the same units as for the life.

number_months

Optional. It is the number of months in the first year of depreciation. If this parameter is omitted, the DB function will assume that there are 12 months in the first year.

How to use the DB Function in Excel?

To understand how to use DB function in Excel, let us take an example.

Example :

Suppose a machinery is purchased in this year and the related information are

1.   Cost of the machine : $100000

2.   Salvage Value : 10000

3.   Life of the machine : 5 years

4.   Period : 1, 2, 3, 4 & 5 (as the life of the machine is 5 years)

Here after implementing the formula for DB function the results are shown in the below image and the formula will be for the 1st year =DB(C3,C4,C5,C6) - the amount is $ 36900.

How to use DB Function in Excel

In next article we will discuss about the DDB function in Excel.

Note : The DB function uses the fixed-declining balance method to compute the asset’s depreciation at a fixed rate.

The formula used by DB to calculate depreciation for a period is,

=(Cost – Total depreciation from prior periods) * Rate

and the calculation of Rate is,

Rate = 1 – ((salvage / cost) ^ (1 / life)).

Different formulas are used for first and last periods.

For the first period, DB uses the formula

=Cost * Rate * Month / 12

For the last period, DB uses the following formula is 

=((Cost – Total depreciation from prior periods) * Rate * (12 – month)) / 12

Keep in mind you need to apply the same formula in excel. You don't need to calculate the above formulas.

Hope you have enjoyed ...

Keep reading and sharing ...

Take care...