Salvage Value

In accounting salvage value is generally called as residual value. A salvage value should only be assigned to an intangible asset if it can be measured reliably. The residual value of an intangible asset will generally only be significant and capable of reliable measurement where the entity has a legal or contractual right to receive a certain sum at the end of the period during which it has use of the asset or where there is a readily ascertainable market value for the residual asset.

Salvage value or residual value is the estimated value of the asset after it has given as mush as use to the owner as possible. Computing this value generally includes enabling for the depreciation of an asset over the extended time period. Taking into consideration the accumulated depreciation makes it probable to find out the selling value for the asset, enabling the owner to get the end bit of the value before parting with the investment. The real computation of salvage value generally starts with the purchase value or price of the asset. By using a projection of the expected useful life of the asset or item, it is likely to find out the amount of depreciation which could be applied to the asset for every year of that economic useful life. This could be a bit complicated, particularly with assets which are likely to undergo a greater rate of depreciation for the initial year or so, and then depreciate at a slower rate for the rest of its life. With the straight-line method to the depreciation, the asset would decline in value since a set rate for the complete useful life, eventually arriving at the residual value at the end of that life.

Questionnaire :

• What is salvage value?
• How salvage value of an asset is computed?