What Is DDB Function in Google Sheets?
The DDB or the Double Declining Balance method is a financial function that is a form of accelerated depreciation. We have the straight-line depreciation, in which the cost of an asset is spread evenly over its useful life, while the DDB is used to calculate the accelerated depreciation of an asset. The advantage of this method is that accelerated depreciation gives room for a larger depreciation expense during the early years of an asset’s life. Hence, it is best for companies looking to reduce taxable income during this period.
Summarizing, the Google Sheets DDB function uses accelerated depreciation which is higher in the initial years of an asset’s life and decreases over time. In the example below you can see how the function is used. We have the cost of an asset worth $15,000 with a salvage value of $2,000. Its useful years are four. DDB calculates the depreciation amount for the first year using the Double Declining Balance method. The result is $8,000.
=DDB(B1,B2,B3,B4)
Key Takeaways
- The DDB function in Google Sheets is a depreciation calculating method that is used to calculate the depreciation of an asset over time.
- The syntax for the DDB function is:
=DDB(cost, salvage, life, period, [factor])
- The DDB function results in a bigger depreciation in the early years and a smaller depreciation amount in later years.
- DDB is advantageous as it may provide tax benefits for businesses that can claim more depreciation early.
Syntax
The syntax of the DDB function in Google Sheets is as follows:
=DDB(cost, salvage, life, period, [factor]).
This function is similar to other depreciation functions in Google Sheets such as VDB, with common arguments like cost, salvage, and life.
- cost – The initial cost of the asset.
- salvage – The value of the asset at the end of the depreciation period.
- life – The number of periods over which the asset is depreciated.
- period – The single period for which to calculate depreciation.
- factor – The factor by which depreciation decreases. The default value is 2 and it is optional.
How To Use DDB Function in Google Sheets?
To understand how to use DDB to calculate an asset’s depreciation over a specified period using the double-declining balance method, we must learn how to enter the function in Google Sheets. The RRI Google Sheets function can be entered in two ways.
- Enter DDB Manually
- Access from the Google Menu Bar
Enter DDB Manually
To understand how to enter this function manually, let us look at a simple example. The cost of a priced antique piece is $10,000. Its salvage/scrap value is fixed at $1,500. Its useful life is 8 years. Let us calculate its depreciation over the third year.
Step 1: Enter the following details in a Google Sheet.
Step 2: In cell B5, enter the following DDB Google Sheets formula. First, enter the function name and open the parentheses. Enter the arguments separated by a comma and close the parentheses.
=DDB(B1, B2, B3, B4)
Step 3: Press Enter. Here, the DDB function calculates the depreciation amount for the third year using the Double Declining Balance (DDB) method and we get a result of $1,406.25.
The useful life of the antique piece is 8 years, and we find the depreciation for the third period. You can also calculate the depreciation for the remaining periods by changing the fourth argument.
Examples
The Double Declining Balance method is a form of accelerated depreciation. Unlike straight-line depreciation, which spreads the cost of an asset evenly over its useful life, DDB allows you to write off more of an asset’s cost in the earlier years.
Example #1 – Depreciation of Office Equipment, With a Useful Life of 5 Years, for Year 1
Suppose a man owns a business and has recently purchased some office equipment for $30,000. He estimates its salvage value at $2,500 after five years. He must use the DDB method to calculate its depreciation for year one. Let is look at how to do the same.
Step 1: Enter all the data and set it up in Google Sheets:
Step 2: In this step, let us enter the following formula
=DDB(B1,B2,B3,B4) for the first year. Press Enter.
You can enter the period from 2 to 5 by changing the fourth we can see how the furniture’s value depletes over its lifespan.
Example #2
In this example, a person purchases a machine for $5,000, with a salvage value of $700, and a useful life of 5 years. We will calculate the depreciation for all the years with a 2x declining balance factor.
Step 1: Let us input data in the spreadsheet.
Step 2: Calculate the DDB depreciation for the first period in cell B4. We use the following formula to calculate depreciation for Period 1
=DDB($B$1, $B$2, $B$3, B4, 2)
This formula will give the depreciation for the first period. We use the absolute references for the first three arguments as they do not change.
Step 3: Drag the formula down for the second period.
Similarly, drag the formula for all the periods. You can see the depreciation for its useful life.
Step 4: We can try to plot a graph for the above values. Select the data from B4 to C8. Go to Insert -> Chart.
Step 5: In the Chart Editor on the right, choose Line Chart.
Example #3
Let us calculate the double-declining balance depreciation in Google Sheets using the DDB function for the following example. We have the asset’s cost, its salvage value, useful life, and the period for which you want to calculate the depreciation. You’ll need the asset’s cost, salvage value, useful life, and the period (year) for which you want to calculate depreciation. Here’s a practical example:
- $25,000: is the initial cost of the asset.
- 2000: is the salvage value.
- 10: is the useful life of the asset
- 2: is the period for which we must calculate the depreciation.
Step 1: Enter all these details in a Google Sheet.
Step 2: Let us use the DDB function as shown below.
=DDB(B1,B2,B3,B4)
Press Enter.
Thus, you can observe that the depreciation value at the end of the second period is $4,000.
Important Things to Note
- The third argument life, and the fourth argument, period, must be in the same units.
- Another depreciation function, the SYD excludes a “factor” argument.
- The DDB function ensures that the depreciation will never reduce the asset’s value below the salvage value.
Frequently Asked Questions (FAQs)
Some of the advantages of using GGB in Google Sheets include:
1. It is very helpful in business as the DDB method helps you to write off a bigger asset value in the early years. This is very helpful if the asset depreciates quickly or the taxable income must be reduced in the initial years of ownership.
2. It is very beneficial for those assets that lose value rapidly like equipment and gadgets as it can provide a clear idea of the asset’s diminishing value over time.
3. By reducing the taxable income in the early years of the asset, businesses can use the money to reinvest it back into the business, which is essential for the growth of the business.
The factor argument in the DDB function determines the rate at which the asset depreciates. Suppose this argument is given as 2, it means the depreciation will be double the straight-line rate. If the factor is 1.5, the depreciation will be 1.5 times the straight-line rate.
There are two methods used to calculate the depreciation of an asset. One is the SLN (Straight-Line Depreciation) and the other is the DDB (Double Declining Balance) method. Both calculate it in different ways.
SLN (Straight-Line Depreciation)
Here, the depreciation is spread equally over the asset’s useful life.
Formula: SLN Depreciation= (Cost−Salvage Value)/ Useful Life
The SLN is simple and easy to calculate and useful for assets that depreciate evenly over time.
DDB (Double Declining Balance)
In this, the depreciation is accelerated in the initial years and the asset loses its value quickly at the start.
The depreciation amount decreases over time as the asset’s value decreases and it provides tax benefits as businesses can claim more depreciation initially.
Download Template
This article must help understand DDB Function in Google Sheets with its formulas and examples. You can download the template here to use it instantly.
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