The estimated value of an asset at the end of its useful life, representing what it could be sold for after depreciation is complete.
Salvage value (also called residual value, scrap value, or disposal value) is the expected realizable value of an asset when it's retired from use. It directly affects depreciation calculations — higher salvage value means lower annual depreciation expense. Under straight-line depreciation, only the amount above salvage value is depreciated. Some companies assume zero salvage value for simplicity. For tax purposes in India, the Written Down Value (WDV) method is used where depreciation continues until the asset's book value is negligible.
A delivery van costs ₹8,00,000 with an expected useful life of 8 years and salvage value of ₹80,000. Depreciable amount = ₹7,20,000. Annual straight-line depreciation = ₹90,000. After 8 years, book value = ₹80,000 (salvage value).
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
Consider: market value of similar used assets, condition at end of useful life, industry resale norms, and scrap material value. For vehicles, check used car/truck market prices. For machinery, consider metal scrap value. Some industries use standard percentages (e.g., 5-10% of cost).
If sold for more than book value (salvage), the difference is a 'Gain on Disposal' (income). If sold for less, it's a 'Loss on Disposal' (expense). Both are recorded in the income statement as non-operating items.
The systematic allocation of the cost of a tangible asset over its useful life, representing the decline in value due to wear, use, or obsolescence.
Long-term tangible assets owned by a business that are used in operations and not intended for sale, such as land, buildings, machinery, vehicles, and equipment.
A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.
Funds spent by a business to acquire, upgrade, or maintain long-term physical assets such as property, equipment, or technology infrastructure.
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