Another common calculation in the world of finance is depreciation . Simply stated, depreciation is how much the value of an asset decreases over time. All assets that depreciate begin with a certain value (which you determine) and then depreciate over the course of a lifetime (which you specify). At the end of an asset's life, from an accounting perspective, the asset's deemed to be useless and without value.
Excel offers four basic depreciation functions (explained below), which can help you determine how much value your asset has lost at any given point in time. These values are useful if you want to sell the asset, or if you're attempting to calculate the current net worth of a business. Depreciation can also figure into tax calculations and business losses; for example, a company might write off a loss based on the value an asset has lost.
The depreciation of an asset isn't as straightforward as interest calculations. That's because there's a certain amount of guesswork involved in deciding what an asset is worth and how rapidly its value declines. An asset can include almost anything, from a piece of equipment or property to a patented technology. It may depreciate due to wear and tear, obsolescence, or market conditions (like decreased demand and increased supply).
In order to assign a value to a depreciated asset, Excel makes a logical guess about the way in which the asset is depreciating. There are a number of accepted ways to make this guess (or estimate, ...