All right, so time to talk about the second method of deposition that is reducing violence method,
or it is also called declining balance method, or some also call it as diminishing violence matter
no matter what you name it.
The criteria is very simple, and that is you charge higher deputization in the initial years with deputization
charge falling each year.
Now, the accounting scenario is that you use this deputization method where the acid is supposed to
generate a higher return.
In the initial years, the productivity of the asset is higher in the initial years and then over time
it falls.
Now, let's talk about the calculation with the reference of an example.
And in the same Easterlin, we will be using the we will be calculating the deposition in our previous
style that we do on our books without using Excel.
And then we will be using the Excel formula that is mentioned at the bottom.
So please ignore this for now and let us focus on the example.
So in this example, we have an asset that has cost us a million dollars.
The salvage value or the residual value is three hundred twenty seven thousand dollars and the life
of the asset is five years.
And the depreciation method that has been given to us is 20 percent declining by less.
All right.
So how do we work?
First of all, we should have a schedule for years, so.
You're one, two, and then three, four and five, and then we should have the net book value at the
beginning of each year and then we should have our depreciation charge for the year.
And then we should have a net book value at the end of the each year.
OK, so let's start with the first year, but you start in the first year.
I mean, when you're starting now, the the net book value of the asset is a million dollars.
And by the way, what is that book value?
Net book value is cost minus a cumulative deputization.
That is all deputization to date.
So we have not depreciated this asset till now.
It is just the new asset.
So the net book value is the same as cost and now the depreciation charge will be a million dollars
into.
OK, so I have to apply 20 percent and for that I should be writing it separately, 20 percent here.
I can I can use this to you know, I can apply 20 in the formula, but that is not the best practice.
We should not be doing that.
So I will be writing 20 percent here separately and let me make it the percentage.
And first of all, let me make the percentages right, so I will apply the formula here.
I will seek net book value at the beginning, multiply by deputization percentage, and that is the
deposition charged for year one.
And if I can just see the net book value at the end of last year will be eight hundred thousand.
Right.
So that is the calculation for the first year.
Now you can see that the deposition charge calculation will be the same each year.
That is the initial book value.
The net book value at the beginning include the percentage of deposition.
So I will just copy and paste this to all the cells here.
But, you know, if I do that, I will be doing a big mistake.
And that is the relative reference.
So first of all, I will be making them absolute reference by pressing a forward so that my cells get
locked.
And now you can see that the calculation of my mistake, my mistake, my mistake, I should not have
logged the first one.
Only the second one needs to be locked.
So, yes, this I'm sorry, I will remove this lock here and I will not copy paste the cell here.
And now you can see that my calculations are working completely altered.
The deputization rate is locked in itself, but the value that will be multiplying, getting multiplied
is the beginning net book value.
And if I can talk about this ending value that we value again, I will just copy and paste here.
No need to lock.
We we need we need to a reference.
I will just show you here and you can see the working is completely all right.
So what I need to do is that I need to bring the net book value at the beginning of here to here and
net book value at the beginning of your two is the same as not book value at the end of year one and
this year.
And not just copy and paste this to all the cells, because that is what we will apply in all different
years.
So that is it.
The deposition charge for each year, one to five has been calculated.
So I'll just you know, I just who's a short explanation for the calculation of deputization?
Because I'm just basically revising the previous method.
The main aim of this lecture in this course is to get you the accounting functions using Microsoft Excel
formulas.
So we'll be just going to Microsoft Excel formula now.
But, you know, just to be able to compute the Excel formula result with the original calculation,
that is good to have the original results as well.
So I'm calculating the deposition here.
So just if I was a little, you know, quick encoding deposition, please take my apologies.
And this is not accounting course.
That is a separate course that you can do.
But here we will be focusing more on Excel.
So now let us go back to Excel now and let us calculate this deposition rather than by doing all that
complete calculation, by using this formula.
So the first year will go here.
Let us supply our formula.
What formula says Formula six equals DBI cost, salvage value, life period and month.
Now, a month is optional, by the way.
So cost we know that salvage.
We know life in our period will be different for each time.
So if you are calculating the deposition charge for year one, that would be one.
If you are calculating for a year, that will be two and so on.
So let us apply.
The formula equals DBI and Excel formulas.
You just need to press the dovekie and the first argument that it is asking you is cost.
So I will go and take my cost.
Your.
The second thing is asking me a salvage value.
I will go and take the salvage value.
The third thing it is asking me is life.
So I will go and take the life.
And the fourth thing is asking me, period.
And for now, I will be taking the first period.
I will you can write to one here, but let's not do it.
That is not the best practice.
Go and relate to your we have mentioned years here, Richard here and then we don't need the money so
we just close the bracket now and I will press, enter and exit will give me the same depreciation that
you had that you actually have floated here.
And by the way, something interesting to be noted is that this formula didn't even ask you for the
depreciation rate.
And that is the beauty of this formula.
It it calculates the existing rate accordingly.
So that is a no.
Before I copy and paste this formula to all five years, I will just lock myself and I need to lock
all of them, by the way.
So lock, lock, lock and lock.
And I will just copy and paste, not all five years.
And by the way, OK, so my mistake.
I think I have done something wrong.
Basically I should not have locked this, this beaten here.
This beaten was not to load.
It has to be a relative, it has to move forward.
So this should not be locked here.
Right.
So I will copy and paste now.
And you can see that Axle has correctly calculated the deposition for all five years.
You can compare these two values, these values here, and you can see that the values here are the
same as values here.
So rather than doing all that manual long process of calculating deposition, you can use this simple
formula and Excel will take care of the rest for you.
I hope that was helpful.