Salvage Value


DEFINITION of '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.


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BREAKING DOWN 'Salvage Value'

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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  1. How is residual value of an asset determined?

    The residual value of an asset is determined by considering the estimated amount that an asset's owner would earn by disposing ... Read Full Answer >>
  2. Is book value a better metric for company worth than the PE ratio?

    Book value can be a better metric than the P/E, or price to earnings, ratio in certain circumstances, but a company’s true ... Read Full Answer >>
  3. What is the difference between book value and salvage value

    Book value and salvage value are two vastly different measures of value. Book value attempts to approximate the fair market ... Read Full Answer >>
  4. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ... Read Full Answer >>
  5. Which is a better measure for capital budgeting, IRR or NPV?

    In capital budgeting, there are a number of different approaches that can be used to evaluate any given project, and each ... Read Full Answer >>
  6. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>

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