##
**WHAT IS DEPRECIATION?**

This is the chapter 5 of the Free Microsoft Excel Online Tutorial Series at Microsoft Tutorials. This chapter 5 has two parts and this is part 1. In this part, I will explicitly explain Depreciation, Causes of Depreciation and how to calculate depreciation charges using the Straight Line Method and Double Decline Balance Method manually and with MS Excel syntax step by step. Each of these methods has a unique formula as you will see in this part 1.

**Part 2**, I will explain how to calculate depreciation charges using the Sum of Years Digits Method manually and with MS Excel.

**previous chapter (chapter 4)**, I explained how to design Stock Ledger Account in MS Excel. Also see the

**full tutorial course content of this FREE Microsoft Excel Tutorial Series**.

### Some fixed assets that depreciate include:

### FACTORS / CAUSES OF DEPRECIATION

#### 1. USAGE:

#### 2. PASSAGE OF TIME (DURATION):

#### 3. OBSOLESCE (OUT DATED OR OUT OF FASHION):

#### 4. PHYSICAL FACTORS:

### FACTORS TO CONSIDER BEFORE CHARGING DEPRECIATION

#### 1. COST:

#### 2. SALVAGE OR SCRAP VALUE:

#### 3. ESTIMATED USEFUL LIFE:

## METHODS OF CALCULATING DEPRECIATION

##
**STRAIGHT LINE (SLN) METHOD:**

#### For the manual calculation, the syntax or formula is:

**(Cost – Scrap Value)/Useful Life**

#### The SLN MS Excel Syntax is:

**=SLN(Cost, Salvage, Life)**then press the enter key

**Where:**

**Cost**is the amount you bought the asset.

**Salvage or Scrap Value**is the worth of the asset after its useful life.

**Life or Useful Life**is the time that the asset takes to attain its scrap value.

##
**PRACTICAL
ILLUSTRATION OF THE STRAIGHT LINE METHOD**

###
**QUESTION:**

###
**SOLUTION:**

####
**SOLVING SLN METHOD MANUALLY;**

**Annual Depreciation Charge**=

**(Cost – Scrap Value)/Useful Life**

**$3000**

####
**USING MICROSOFT
EXCEL;**

**=SLN(B1, B2, B3)**then press the enter key.

####
**NOTE:**

##
**DOUBLE DECLINE
BALANCE (DDB) METHOD:**

#### For the manual calculation, the syntax or formula is:

**(Rate * Cost)/(Useful Life * 100)**

#### The DDB MS Excel Syntax is:

**=DDB(Cost, Salvage, Life, Period, Factor)**then press the enter key

**Where:**

**Cost**is the amount you bought the asset.

**Salvage or Scrap Value**is the worth of the asset after its useful life.

**Life or Useful Life**is the time that the asset takes to attain its scrap value.

**Period**is the age of the asset.

**Rate**or

**Factor**is the Depreciation rate of the asset usually expressed in percentage.

##
**PRACTICAL
ILLUSTRATION OF THE DOUBLE DECLINE BALANCE (DDB) METHOD**

###
**QUESTION:**

###
**SOLUTION:**

####
**SOLVING DDB METHOD MANUALLY;**

**Depreciation Charge for the 1**

^{st}Year**= $8333.33**

**Worth of Asset at the beginning of the 2**

^{nd}Year**$191666.67**

**Depreciation Charge for the 2**

^{nd}Year**$7986.11**

**Worth of Asset at the beginning of the 3**

^{rd}Year**$183680.56**

**Depreciation Charge for the 3**

^{rd}Year**$7653.36**

**Worth of Asset at the beginning of the 4**

^{th}Year**$176027.20**

**Depreciation Charge for the 4**

^{th}Year**= $7334.47**

**Worth of Asset at the end of the 4**

^{th}Year**$168692.73**

####
**Calculation Tips:**

**Current Worth or Value**= Previous Worth - Previous Depreciation Charge

^{st}, 2

^{nd}, 3

^{rd}and 4

^{th}year are:

####
**USING MICROSOFT
EXCEL;**

**For the Subsequent Worth:**

**=B2 – B7**

**=C2 – C7**

**=D2 – D7**

**For the Depreciation Charges:**

**=DDB(B2, 0, B4, B5, B6)**

**=DDB(C2, 0, C4, C5, C6)**

**=DDB(D2, 0, D4, D5, D6)**

**=DDB(E2, 0, E4, E5, E6)**

###
**CONCLUSION NOTES:**

**Chapter 1 of Part 3**where I explained MS Excel error messages and their solutions in detail now.

## In the

**next part (Part 2 of chapter 5)**, I will explain how to calculate depreciation charges using the Sum of Years Digits and then give you some practical exercises.

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