What is salvage value?

Salvage value is the estimated resale value of an asset at the end of its useful life. You subtract salvage value from the cost of a fixed asset to determine the amount of the asset cost that you will depreciate.

For example, ABC Company buys an asset for $100,000, and estimates that its salvage value will be $10,000 in five years, when it plans to dispose of the asset. This means that ABC will depreciate $90,000 of the asset cost over five years, leaving $10,000 of the cost remaining at the end of that time. ABC expects to then sell the asset for $10,000, which will eliminate the asset from ABC's accounting records.

If it is too difficult to determine a salvage value, or if the salvage value is expected to be minimal, then you do not have to include a salvage value in your depreciation calculations. Instead, simply depreciate the entire cost of the fixed asset over its useful life. You would then recognize any proceeds from the eventual disposition of the asset as a gain.

Salvage value is not discounted to its present value.

Related Topics

Overview of depreciation
What is the accounting entry for depreciation?