Financial Glossary: Salvage Value


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Salvage Value

Salvage Value

The estimated value that an asset Will realize upon its sale at the end of its useful life.

The value is used in accounting to determine Depreciation amounts and in the Tax system to determine deductions. The value can be a best guess of the end value or can be determined by a regulatory body such as the IRS. This is also known as residual value or scrap value. It is the net Cash inflow that occurs when the asset is liquefied at the end of its life. Salvage value can be negative if the residual asset requires special treatment to terminate - for example, used nuclear materials. Salvage value depends upon various conditions or factors :type of industry ,type of goods ,type of usage -kind of situation or circumstance at that time of evaluation.

The salvage value is used in conjunction with the purchase price and accounting method to determine the amount by which an asset depreciates each period. For example, with a straight-line Basis, an asset that cost $5,000 and has a salvage value of $1,000 and a useful life of five years would be depreciated at $800 ($5,000-$1,000/5 years) each year.

Within the Tax system, when a person donates a car he or she receives a Tax Deduction. The value of this Deduction depends on the salvage value of the car. This salvage value is determined to be the current fair Market value that could be obtained had the car been sold on that day rather than donated.

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