Why does Excel's DDB formula never depreciate the whole amount when the
salvage value = 0? It always leaves a few hundred dollars left to depreciate
-- I've tried tons of examples and they all do this.

That's what declining balance does. When you're always reducing something
by, say 20%, you will never get to zero. It's got nothing to do with Excel,
it's the mathmatics of declining balance depreciation (or geometric
progressions, if you want to generalize).

Regards,
Fred

"brandi7862" wrote in message
...
Why does Excel's DDB formula never depreciate the whole amount when the
salvage value = 0? It always leaves a few hundred dollars left to
depreciate
-- I've tried tons of examples and they all do this.

"brandi7862" wrote:
Why does Excel's DDB formula never depreciate the whole
amount when the salvage value = 0? It always leaves a few
hundred dollars left to depreciate
-- I've tried tons of examples and they all do this.

There are two issues to consider.

The first issue is that declining-balance depreciation is determined by
multiplying the remaining value (less salvage value) by a depreciation rate
-- some percentage less than 100%. Thus, the remaining value after
depreciation is the remaining value (less salvage value) times 1 minus the
rate (1-r).

Mathematically, such a formula will never reach zero. But in practical
terms, the depreciation must be rounded at least to the penny. So in fact,
eventually you can indeed depreciate to zero. But a mathematical formula
cannot compute that.

I will return to that in a moment.

The second issue is that by default, the Excel DDB() function arbitrarily
chooses a depreciation rate of 2/life. So, for example, if the lifetime is
10 years, the depreciation rate is 2/10 or 20%. There is no assurance that
applying that rate will depreciate the original cost to zero (or close to
zero) within the stated lifetime.

(You might have specified a different factor. But it sounds like it was
incorrect for the outcome that you want.)

However, you can compute a rate that will depreciate the cost to (nearly)
zero in the desired lilfetime.

Suppose your asset cost $10,000, and you want to depreciate it to zero after
10 years.

In practical terms, let's say that means you want the remaining value to be
$1 after 9 years. So, you can compute the depreciation rate with the
following formula:

=-rate(9, 0, -10000, 1)

Note the use of minus signs so that we get a positive percentage rate.

Also note that the last argument to the DDB() function is a "factor" such
that factor/life is the deprecation rate. So, the "factor" argument must be
computed by rate*life.

In summary, in general, DDB() can be used for life-1 periods as follows:

=DDB(cost, 1, life-1, n, -rate(life-1, 0, -cost, 1)*(life-1))

for periods "n" equal to 1 through life-1.

For my example:

=DDB(10000, 1, 9, n, -rate(9, 0, -10000, 1)*9)

for periods "n" equal to 1 through 9.

The depreciation for the last period should be $1, or approximately $1
depending on if and how you round results each period.

HTH.

PS....

On Feb 13, 9:19*pm, I wrote:
However, you can compute a rate that will depreciate the cost to (nearly)
zero in the desired lilfetime.
[....]
=DDB(cost, 1, life-1, n, -rate(life-1, 0, -cost, 1)*(life-1))

I should emphasize that I was presenting a mathematical solution, not
necessary an accounting one.

In point of fact, that does not follow accepted accounting practice.
See http://en.wikipedia.org/wiki/Depreciation , especially the section
entitled "Declining-balance/Reducing balance depreciation".

Conceptually, depreciate 100 by 10%, you get 90, depreciate that by 10% and
you get 81, depreciate that by 10% and you get 72.9 and depreciate that by
10% and you get 65.61, etc. It never gets to zero.

Tyro

"brandi7862" wrote in message
...
Why does Excel's DDB formula never depreciate the whole amount when the
salvage value = 0? It always leaves a few hundred dollars left to
depreciate
-- I've tried tons of examples and they all do this.