salvage value

When you finally retire an old work truck after years of service, it is rarely worth nothing. You might sell it for parts, trade it in, or sell it second-hand for a few thousand. That leftover, end-of-life worth is the part of the truck's cost you will get back rather than use up. Accountants call it salvage value, and they take care not to depreciate it away, because you never really 'consumed' it.

Salvage value (also called residual or scrap value) is the estimated amount a company expects to recover from an asset at the end of its useful life — by selling, trading, or scrapping it. Its job in depreciation is to mark the part of cost that should not be spread out as expense. The amount you actually depreciate, called the depreciable cost, is the asset's cost minus its salvage value. So a 25,000 machine with an estimated 3,000 salvage value only has 22,000 to depreciate over its life; the 3,000 stays on the books as the floor below which book value should not fall.

Salvage value matters because it directly changes how much depreciation hits profit each year — a higher salvage value estimate means less depreciable cost and therefore lower yearly expense (and higher reported profit). Because it is an estimate made years in advance, it is inherently uncertain, and companies sometimes set it at zero for simplicity when it is small. A common misunderstanding is to think salvage value is what the asset is 'worth' along the way; it is specifically the expected worth at the end, and in accelerated methods it is ignored during the yearly math but still acts as the floor depreciation cannot cross.