Salvage (residual) value

Definition

Salvage (residual) value is the estimated amount that an asset is worth at the end of its useful life. It is used in calculating depreciation for long-term assets.

5 Must Know Facts For Your Next Test

1. Salvage value affects the depreciation expense calculation over an asset's useful life.
2. It is subtracted from the asset's initial cost to determine the total amount to be depreciated.
3. Salvage value must be estimated at the time of acquiring the asset.
4. Choosing a higher salvage value results in lower annual depreciation expenses.
5. Companies often review and adjust salvage values periodically based on new information or changes in market conditions.

Related terms

Depreciation:

The systematic allocation of the cost of an asset over its useful life.

Useful Life:

The period over which an asset is expected to be usable for its intended purpose.

Book Value:

The value of an asset as shown on a company's balance sheet, calculated as cost minus accumulated depreciation.