Calculating Depreciation with the Production Method

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Example

Suppose you purchase a truck for $25,000, and it has a residual value of $1500. The useful life of the truck is 250,000 miles. During a specific period of operation, you drive the truck 15,000 miles. The function below will calculate the depreciation for that period.

1. Create a new workbook in Microsoft Excel. Insert a module sheet, and type the following code:

         ' Defines the function and the variables.
   
         Function Prod_depr(usage as Double, cost as Double, _
            residual_value as Double, useful_life As Double) As Double
   
            ' Performs the mathematical computation.
            Prod_depr = usage * ((cost - residual_value) / useful_life)
   
         End Function
   						

2. In cell A1 of Sheet1, type the following formula:

   =Prod_depr(15000,25000,1500,250000)

   The function will return a value of 1410.

NOTE: The arguments for the function were based on the following descriptions:

• "Usage" is the amount of usage, in units, the item has received during the depreciation period. This can be measured in miles or hours used.
• "Cost" is the original price paid for the item.
• "Residual_value" is the estimated salvage or trade-in value.
• "Useful_ life" is the planned usage, in units, of the item during its lifetime.

NOTE: It may be easier to type the formula directly into your worksheet if you do not intend to use the custom macro function frequently.