What is the VDB Declining Balance Function?
The VDB Function is a Financial functionFunctionsThe VDB Function is a Financial function. VDB is short form for Variable Declining Balance. The function helps in calculating the depreciation of an asset using the Double Declining Balance Method or some other method specified by us. The Excel VDB function also allows us to specify a factor to multiply the that calculates the depreciation of an asset using the Double Declining Balance (DDB) methodDepreciation MethodsThe most common types of depreciation methods include straight-line, double declining balance, units of production, and sum of years digits. There are various formulas for calculating depreciation of an asset. This guide is an overview of book value, depreciation expense calculations, formulas, examples, graphs or some other method specified by the user. VDB is a short form of Variable Declining Balance.
The Excel VDB function also allows us to specify a factor to multiply the Straight-Line DepreciationStraight 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 by, although the function uses the DDB method by default. It will help a financial analyst in building financial modelsTypes of Financial ModelsThe most common types of financial models include: 3 statement model, DCF model, M&A model, LBO model, budget model. Discover the top 10 types of Excel models in this detailed guide, including images and examples of each. Financial modeling is performed for many reasons including to value a business, raise money or creating a fixed asset depreciation scheduleDepreciation ScheduleA depreciation schedule is required in financial modeling to forecast the value of a company's fixed assets (balance sheet), depreciation expense (income statement) and capital expenditures (cash flow statement). In financial modeling, a depreciation schedule is requried to link the three financial statements in Excel for analysis.
Formula
=VDB(cost, salvage, life, start_period, end_period, [factor], [no_switch])
The VDB function uses the following arguments:
- Cost (required argument) – It is the initial cost of the asset.
- Salvage (required argument) – It is the value of an asset at the end of the depreciation. It can be zero. It is also known as the salvage value.
- Life (required argument) – It is the useful life of the asset or the number of periods for which the asset will be depreciated.
- Start_period (required argument) – It is the starting period for which you want to calculate the depreciation. Start_period must use the same units as life.
- End_period (required argument) – It is the ending period for which you want to calculate the depreciation. End_period must use the same units as life.
- Factor (optional argument) – It is the rate of depreciation. If we omit the argument, the function will take the default value of 2, which denotes the double declining method.
- No_switch – It is an optional logical argument that specifies whether the method should switch to straight-line depreciation when depreciation is greater than the declining balance calculation. Possible values are:
- TRUE – Excel will not switch to the straight-line depreciation method;
- FALSE – Excel will switch to the straight-line depreciation method when depreciation is greater than the declining balance calculation.
Calculate Declining Balance with VDB Function in Excel
To understand the uses of the VDB function, let us a consider a few examples:
Example – Variable Declining Balance
Assuming we wish to calculate the depreciation for an asset with an initial cost of $500,000 and a salvage value of $50,000 after 5 years.
We will calculate the depreciation for one day, one month and one year. The formula used in calculating depreciation for a day is:
We get the result below:
The formula used in calculating depreciation for a month is:
We get the result below:
The formula used in calculating depreciation for a year is:
We get the result below:
In the formulas above, we did not provide the factor argument so Excel assumed it as 2 and used the DDB method. Excel also assumed the no_switch argument as FALSE.
Things to remember about the VDB Function
- We need to provide arguments “period” and “life” in the same units of time: years, months or days.
- All arguments except no_switch must be positive numbers.
- #VALUE! error – Occurs when the given arguments are non-numeric.
- #NUM! error – Occurs when:
- Any of the supplied cost, salvage, start_period, end_period or [factor] arguments are < 0;
- The given life argument is less than or equal to zero;
- The given start_period is > the given end_period; and
- Start_period > life or end_period > life.
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