Mastering Financial Modelling in Microsoft Excel 3rd edn, 3rd Edition

17

Depreciation

Introduction

Straight line

Sum of digits

Declining balance

US MACRS

Amortisation

Comparison

Summary

INTRODUCTION

Excel contains a number of functions for calculating depreciation for tax or accounting purposes and the model MFM3_17_Depreciation summarises the different methods. The model uses functions and first principles for these methods:

• straight line accounting;
• sum of digits (also called the Rule of 78);
• declining balance (as used for UK tax);
• Modified Accelerated Cost Recovery System (MACRS) used in the US for tax depreciation.

Depreciation is a notional or book-keeping entry which attempts to match the writing off of an asset with its useful life. This is a charge against profits rather than a physical cash flow, ...