Depreciation

Transcript Area

This Excel tutorial deals with makers. There is a be aware that there's another tutorial that covers the other types of depreciation which are straight line, declining balance, or sum of years digits. This one just specifically deals with makers. In makers you need first cost, recovery period. And remember salvage does not play in a makers. Salvage is zero makers so that is why there's a 0 coded under information. When working with makers in Excel it uses different factors. If your recovery period, or life, is 3, 5, 7, or 10 years your factor is 2 or 200% if you are using 15 or 20 years that would be a 150% or 1.5.

Since my recovery period or life is 10 my factor is 200%. Now with this information we can go in and start to do our calculations. Our life is 10 years, which means we will have 11 periods total for our makers because remember, the first period runs from 0 to 0.5 years. That's why you have the dip over into half of year of year 11. Now the formula for makers in Excel, it looks a little complex at first but let's go through it. I have a coded in in our first cell. So let's zoom in on it so we can talk about it. It..to do makers, it is equals VDB is the code in Excel. The things that it asked you for and I'm going to click here. Notice the first thing it asks for is cost.

Our cost was in cell B2. The reason I have locked the cell is because I want to hard code it in for period 1 and then just be able to drag it down through period 11 and then I don't have to continually put this complex formula in. It asked for Salvage although in here I have salvage coded in B3, I'm just going to hard code it as a straight-up 0. Then that way for any reason if you come to back to this spreadsheet and accidentally changed that zero to something different it would mess up your calculation. So I'm going to actually hard-code that to a zero. The next thing it asks me for is life. The life in this particular problem is located in cell B4. Again, I've locked the cells because I wanted to put the formula in once and drag it down.

Now where it gets complex is when we get into our start period and end period. Remember the first period runs from 0 to 0.5 the second period from 0.5 to 1.5 and so on. So be able to do this for the teeth time in the process you can code this to be a maximum of 0 comma B8, which is period 1, minus 1.5 or the minimum of hard code, 10 comma B8 minus 0.5. That looks kind of like some complex coding, but what that's allowing you to do is your first period is from t minus 1 .5 to t minus 0.5 and last period from life minus 0.5 to life. I hope that makes sense. Take a look at your text and it over this to make sure you understand what's going on in that coding. And then the last thing it ask you for is the factor.

In this one remember because I have recovery period or life of 10 years my factor is 200%. So I have coded this in and you get $25,000. Okay, now if I go..because I've locked those cells I'm able to grab this corner and pull down and fill in my depreciation through the entire time period. Notice here, remember it dips into 11 because you get a half a period over into that. Now to make sure you did everything right. All you simply have to do is sum these values. So I'm going to put equals sum and I'm just going to highlight these and I better get my original first cost back. And I do. Which means I did my makers depreciation correctly.

Something else I want to point out about makers is that the salvage value is zero because it's recaptured depreciation when the piece of equipment is sold. I realized this particular one is complex. So please go back and review this formula and make sure you understand how it's dealing with that first period from 0 to 0.5 and then 0.5 to 1.5 for next period. Be sure to review how that Max and Min is done there so you understand how it's picking up the life.