Salvage value

Written by Fmi.Online Friday November 11, 2022
Salvage value also called residual or scrap value is the estimated worth of an asset at the end of its useful life. In other words, salvage value is the price management believes it can sell an asset for after the asset is deemed unusable because of time, abuse, and obsolescence. For non-accountants, the term scrap value makes more sense because this is the value of the asset after it can no longer be used. Scrap value is the amount of money that can be salvaged from the used assets.

Explanation: 

Salvage value is used in calculating depreciation and making equipment purchase decisions. Management will often consider the estimated salvage value of an asset when deciding to make a new equipment purchase because a salvage value will often lower the total cost of the asset over time since the salvage value can be recouped when the asset is later sold.

In a nutshell: 

  • Salvage value is the book value of an asset after all depreciation has been fully expensed.
  • The salvage value of an asset is based on what a company expects to receive in exchange for selling or parting out the asset at the end of its useful life.
  • Companies may depreciate their assets fully to $0 because the salvage value is so minimal.Salvage value will influence the total depreciable amount a company uses in its depreciation schedule.
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