What is the DB Function?
The DB function is a Financial functionFunctionsThe DB function is a Financial function. The function helps in calculating the depreciation of an asset. The method used for calculating depreciation is the Fixed Declining Balance Method for each period of the asset's lifetime. Formula =DB(cost, salvage, life, period, [month]) The DB function uses the following. The function helps in calculating the depreciation of an asset. The method used for calculating depreciation is the Fixed Declining Balance MethodStraight Line DepreciationStraight line depreciation is the most commonly used and easiest method for allocating depreciation of an asset. With the straight line method, the annual depreciation expense equals the cost of the asset minus the salvage value, divided by the useful life (# of years). This guide has examples, formulas, explanations for each period of the asset’s lifetime.
Formula
=DB(cost, salvage, life, period, [month])
The DB function uses the following arguments:
- Cost (required argument) – It is the initial cost of the asset.
- Salvage (required argument) – It is the value of the asset at the end of the depreciation.
- Life (required argument) – It is the useful life of the asset or the number of periods for which we will be depreciating the asset.
- Period (required argument) – It is the period for which we wish to calculate the depreciation for.
- Month (optional argument) – It specifies how many months of the year are used in the calculation of the first period of depreciation. If omitted, the function will take the default value of 12.
How to use the DB Function in Excel?
To understand the uses of the DB function, let’s consider a few examples:
Example 1
Assuming we wish to calculate the depreciation for an asset with an initial cost of $100,000. The asset’s salvage value after 5 years is $10,000.
We will calculate the depreciation for all five years. The formula used is:
The month argument was left blank, so the function would assume it as 12. For each year, we will only change the period, as shown below:
The result we got for five years is below:
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
Where:
Rate = 1 – ((salvage / cost) ^ (1 / life)).
Different formulas are used for first and last periods. For the first period, DB uses the following formula:
=Cost * Rate * Month / 12
For the last period, DB uses the following formula:
=((Cost – Total depreciation from prior periods) * Rate * (12 – month)) / 12
Example 2
Let’s take another example to understand the function more. We use the same data as in the example above. However, the depreciation calculation starts 6 months into Year 1. The data used for calculating the depreciation is:
Now, the new formula will make a reference to the month argument. The formula used is:
In the example, the value at the end of Year 1 has only depreciated over 6 months and the value at the end of Year 2 has depreciated over 18 months (6 months of Year 1 + 12 months of Year 2), etc.
We get the result below:
Things to remember about the DB Function
- #VALUE! error – Occurs when the given arguments are non-numeric.
- #NUM! error – Occurs when:
- The given cost or salvage argument is less than zero.
- The given life or period argument is less than or equal to zero.
- The given month argument is less than or equal to zero or is greater than 12.
- The given period argument is greater than the life argument and we omitted the month argument.
- The given period is greater than life+1. For example, if the life of the asset is 5 years and we provided the period argument as 6 years with 12 months as the month argument.
Click here to download the sample Excel file
Additional resources
Thanks for reading CFI’s guide to important Excel functions! By taking the time to learn and master these functions, you’ll significantly speed up your financial analysis. To learn more, check out these additional resources:
- Excel Functions for FinanceExcel for FinanceThis Excel for Finance guide will teach the top 10 formulas and functions you must know to be a great financial analyst in Excel. This guide has examples, screenshots and step by step instructions. In the end, download the free Excel template that includes all the finance functions covered in the tutorial
- Advanced Excel Formulas Course
- Advanced Excel Formulas You Must KnowAdvanced Excel Formulas Must KnowThese advanced Excel formulas are critical to know and will take your financial analysis skills to the next level. Advanced Excel functions you must know. Learn the top 10 Excel formulas every world-class financial analyst uses on a regular basis. These skills will improve your spreadsheet work in any career
- Excel Shortcuts for PC and MacExcel Shortcuts PC MacExcel Shortcuts - List of the most important & common MS Excel shortcuts for PC & Mac users, finance, accounting professions. Keyboard shortcuts speed up your modeling skills and save time. Learn editing, formatting, navigation, ribbon, paste special, data manipulation, formula and cell editing, and other shortucts