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Salvage value is an important part of depreciation when you calculate depreciation you deduct the salvage value and you divide by the number of years of your term of their life or the life of the asset so let’s understand this in complete detail format salvage value or the scrap value is the value of any assets after it’s useful life is over.
So let’s say you brought an asset today and after years let’s say that asset has it’s not actually in an operational state so it has almost lost its useful life now so after that when you sell it as scrap so what is going to be it’s salvage value that’s what we are discussing here let’s understand this in detail format.
First, we’ll understand the nitty-gritty of what is the salvage value, see salvage value or the scrap value is valued of an asset is the value of an asset after its useful life is over. For example, if you buy machinery and if of a company and it has a life of let’s say five years and at the end of the five years, its value is let’s say only 5000 at the end.
Let’s say its value is only 5000 so 5000 over here it’s called the salvage value, now when a company purchases an asset like first it calculates its salvage value of the asset and thereafter you know this is deducted from the total cost of the assets and then the depreciation is charged on the remaining amount. So it is very difficult to calculate this value the normal practice is to depreciate the assets on the total cost basis considering its value as now there is one issue with the concept.
