How to use the VDB function

What is the VDB function?

The VDB function calculates the depreciation of an asset for a given period using the double-declining balance method or based on user input, you may use partial periods in this function. VDB is an abbreviation for variable declining balance.

1. Introduction

What is depreciation of an asset?

Depreciation is an accounting method that allows businesses to allocate the cost of a tangible asset over its useful life. It represents how much of an asset’s value has been used up over time.

Depreciation helps businesses to match their expenses with their revenues, and to reduce their taxable income by deducting the depreciation expense.

What is the the double-declining balance method?

The double-declining balance method is an accelerated depreciation technique used in accounting and finance, it is a specific application of the declining balance method.

Depreciation is calculated by multiplying the asset's book value by a fixed rate of 200% each year. This results in the asset being fully depreciated over roughly half the straight-line depreciation schedule.

The depreciation amount declines each year as the asset's book value declines, depreciation is highest in the first year, tapering down each subsequent year.

Depreciation functions in Excel

Function	Description
SYD(cost, salvage, life, period)	Sum-of-the-years digits depreciation
DB(cost, salvage, life, period, [month])	Fixed-declining balance depreciation
DDB(cost, salvage, life, period, [factor])	Double-declining balance depreciation
AMORLINC(cost, date_purchased, first_period, salvage, period, rate, [basis])	Depreciation for period using linear method
AMORDEGRC(cost, date_purchased, first_period, salvage, period, rate, [basis])	Depreciation from date of purchase to end of period
VDB(cost, salvage, life, start_period, end_period, [factor], [no_switch])	Variable declining balance depreciation

2. Syntax

VDB(cost, salvage, life, start_period, end_period, [factor], [no_switch])

Cost	Required. What you pay for the asset.
Salvage	Required. The value of the asset at the end of depreciation.
Life	Required. The number of periods the asset is being depreciated.
Start_period	Required. The start of the range you want to calculate the depreciation. Start_period must use the same units as life.
End_period	Required. The end of the range you want to calculate the depreciation. End_period must use the same units as life.
[factor]	Optional. How quickly the balance declines, default value is 2 (the double-declining balance method).
[no-switch]	Optional.  A boolean value determining whether to use to straight-line depreciation when depreciation is larger than the declining balance calculation. TRUE - Does not switch to a straight-line depreciation even if the depreciation is larger than the declining balance calculation. FALSE - Switches to straight-line depreciation if the depreciation is larger than the declining balance calculation.

What is salvage value?

Salvage value is the estimated value of an asset at the end of its useful life. It is also known as scrap value or residual value. It is used to calculate the depreciation expense of an asset over its useful life.

What math formula is the VDB function using?

The VDB function uses the same formula as the DDB to calculate depreciation for a period, however, it uses additional arguments and logic to handle the switching to straight-line depreciation if applicable.

Depreciation = Min( (cost - total_depreciation_from_prior_periods) * (factor / life), (cost - salvage - total_depreciation_from_prior_periods))

• If no_switch is set to FALSE (the default), the function will automatically switch to the straight-line depreciation method when it becomes greater than the declining balance method.
• If no_switch is set to TRUE, the function will continue using the declining balance method even if it becomes less than the straight-line method.

3. Example 1

A company purchased a machine for $500,000 with an estimated useful life of 8 years and a salvage value of $50,000. Calculate the depreciation for the third year using the 150% declining balance method?

The arguments are:

• cost: 500,000 - What you payed
• salvage: 50,000 - The value at the end of the life span
• life: 8 - The life span
• start_period: 3 - The start period you want to calculate the depreciation for
• end_period: 3 - The end period you want to calculate the depreciation for
• factor: 1.5 - for 150% declining balance method
• no_switch: FALSE

Formula in cell C24:

The formula returns $61,889.65 in cell C24.

The image above shows a chart displaying a blue curve representing the depreciation for each year across all 8 years which is the life span of the machine. Below the formula in cell C24 is a table that shows the depreciation and the total machine value across periods.

The math formula for calculating the depreciation is:
Min( (cost - total_depreciation_from_prior_periods) * (factor / life), (cost - salvage - total_depreciation_from_prior_periods))

Let's plug the values and see what we get for the third period.

MIN(500,000 - 169921.875)*(1.5/8), (500,000 - 169921.875))
MIN(61889.6484375, 280078.125)

The minimum value is $61,889.65, which is the depreciation for the third year using the 150% declining balance method. This matches the calculated value in cell C24.

4. Example 2

A company purchased a computer system for $80,000 with an estimated useful life of 6 years and a salvage value of $10,000. Calculate the depreciation for the fifth year using the double-declining balance method, but do not switch to straight-line depreciation?

The arguments are:

• cost: 80,000 - What you payed
• salvage: 10,000 - The value at the end of the life span
• life: 6 - The life span
• start_period: 4 - The start period you want to calculate the depreciation for
• end_period: 5 - The end period you want to calculate the depreciation for
• factor: 2 - for 200% declining balance method
• no_switch: TRUE

Formula in cell C24:

The formula returns $5,267.49 in cell C24.

The image above shows a chart displaying a blue curve representing the depreciation for each year across all 6 years which is the life span of the computer system. Below the formula in cell C24 is a table that shows the depreciation and the total value across periods.

The math formula for calculating the depreciation is:
Min( (cost - total_depreciation_from_prior_periods) * (factor / life), (cost - salvage - total_depreciation_from_prior_periods))

Let's plug the values and see what we get for the fifth period.

MIN( (80,000 - 64197.5308641975)*(2/6) , (80,000 - 64197.5308641975) )
MIN( 5267.48971193416, 15802.4691358025 )

The minimum value is $5267.48, which is the depreciation for the fifth year using the 200% declining balance method. This matches the calculated value in cell C24.

5. Function not working

The VDB function returns

• #VALUE! error if you use a non-numeric input value in the first 5 arguments.
• #NAME? error if you misspell the function name.
• propagates errors, meaning that if the input contains an error (e.g., #VALUE!, #REF!), the function will return the same error.

7.1 Troubleshooting the error value

When you encounter an error value in a cell a warning symbol appears, displayed in the image above. Press with mouse on it to see a pop-up menu that lets you get more information about the error.

1. The first line describes the error if you press with left mouse button on it.
2. The second line opens a pane that explains the error in greater detail.
3. The third line takes you to the "Evaluate Formula" tool, a dialog box appears allowing you to examine the formula in greater detail.
4. This line lets you ignore the error value meaning the warning icon disappears, however, the error is still in the cell.
5. The fifth line lets you edit the formula in the Formula bar.
6. The sixth line opens the Excel settings so you can adjust the Error Checking Options.

Here are a few of the most common Excel errors you may encounter.

#NULL error - This error occurs most often if you by mistake use a space character in a formula where it shouldn't be. Excel interprets a space character as an intersection operator. If the ranges don't intersect an #NULL error is returned. The #NULL! error occurs when a formula attempts to calculate the intersection of two ranges that do not actually intersect. This can happen when the wrong range operator is used in the formula, or when the intersection operator (represented by a space character) is used between two ranges that do not overlap. To fix this error double check that the ranges referenced in the formula that use the intersection operator actually have cells in common.

#SPILL error - The #SPILL! error occurs only in version Excel 365 and is caused by a dynamic array being to large, meaning there are cells below and/or to the right that are not empty. This prevents the dynamic array formula expanding into new empty cells.

#DIV/0 error - This error happens if you try to divide a number by 0 (zero) or a value that equates to zero which is not possible mathematically.

#VALUE error - The #VALUE error occurs when a formula has a value that is of the wrong data type. Such as text where a number is expected or when dates are evaluated as text.

#REF error - The #REF error happens when a cell reference is invalid. This can happen if a cell is deleted that is referenced by a formula.

#NAME error - The #NAME error happens if you misspelled a function or a named range.

#NUM error - The #NUM error shows up when you try to use invalid numeric values in formulas, like square root of a negative number.

#N/A error - The #N/A error happens when a value is not available for a formula or found in a given cell range, for example in the VLOOKUP or MATCH functions.

#GETTING_DATA error - The #GETTING_DATA error shows while external sources are loading, this can indicate a delay in fetching the data or that the external source is unavailable right now.

7.2 The formula returns an unexpected value

To understand why a formula returns an unexpected value we need to examine the calculations steps in detail. Luckily, Excel has a tool that is really handy in these situations. Here is how to troubleshoot a formula:

1. Select the cell containing the formula you want to examine in detail.
2. Go to tab “Formulas” on the ribbon.
3. Press with left mouse button on "Evaluate Formula" button. A dialog box appears.
   The formula appears in a white field inside the dialog box. Underlined expressions are calculations being processed in the next step. The italicized expression is the most recent result. The buttons at the bottom of the dialog box allows you to evaluate the formula in smaller calculations which you control.
4. Press with left mouse button on the "Evaluate" button located at the bottom of the dialog box to process the underlined expression.
5. Repeat pressing the "Evaluate" button until you have seen all calculations step by step. This allows you to examine the formula in greater detail and hopefully find the culprit.
6. Press "Close" button to dismiss the dialog box.

There is also another way to debug formulas using the function key F9. F9 is especially useful if you have a feeling that a specific part of the formula is the issue, this makes it faster than the "Evaluate Formula" tool since you don't need to go through all calculations to find the issue..

1. Enter Edit mode: Double-press with left mouse button on the cell or press F2 to enter Edit mode for the formula.
2. Select part of the formula: Highlight the specific part of the formula you want to evaluate. You can select and evaluate any part of the formula that could work as a standalone formula.
3. Press F9: This will calculate and display the result of just that selected portion.
4. Evaluate step-by-step: You can select and evaluate different parts of the formula to see intermediate results.
5. Check for errors: This allows you to pinpoint which part of a complex formula may be causing an error.

The image above shows cell reference D3 converted to hard-coded value using the F9 key. The TRIMMEAN function requires numerical values between 0 (zero) and 1 which is not the case in this example. We have found what is wrong with the formula.

Tips!

• View actual values: Selecting a cell reference and pressing F9 will show the actual values in those cells.
• Exit safely: Press Esc to exit Edit mode without changing the formula. Don't press Enter, as that would replace the formula part with the calculated value.
• Full recalculation: Pressing F9 outside of Edit mode will recalculate all formulas in the workbook.

Remember to be careful not to accidentally overwrite parts of your formula when using F9. Always exit with Esc rather than Enter to preserve the original formula. However, if you make a mistake overwriting the formula it is not the end of the world. You can “undo” the action by pressing keyboard shortcut keys CTRL + z or pressing the “Undo” button

7.3 Other errors

Floating-point arithmetic may give inaccurate results in Excel - Article

Floating-point errors are usually very small, often beyond the 15th decimal place, and in most cases don't affect calculations significantly.

 

 

Functions in 'Financial' category

The VDB function function is one of 27 functions in the 'Financial' category.

Excel function categories

Excel categories

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