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Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important component in the calculation of a depreciation schedule.

KEY TAKEAWAYS

Salvage value is the book value of an asset after all depreciation has been fully expensed.
The salvage value of an asset is based on what a company expects to receive in exchange for selling or parting out the asset at the end of its useful life.
Companies may depreciate their assets fully to $0 because the salvage value is so minimal.
Salvage value will influence the total depreciable amount a company uses in its depreciation schedule.

Understanding Salvage Value

An estimated salvage value can be determined for any asset that a company will be depreciating on its books over time. Every company will have its own standards for estimating salvage value. Some companies may choose to always depreciate an asset to $0 because its salvage value is so minimal. In general, the salvage value is important because it will be the carrying value of the asset on a company’s books after depreciation has been fully expensed. It is based on the value a company expects to receive from the sale of the asset at the end of its useful life. In some cases, salvage value may just be a value the company believes it can obtain by selling a depreciated, inoperable asset for parts.