In accounting terms, what is meant by 'salvage value'?

The term 'salvage value' refers to the estimated residual value that an asset is expected to have at the end of its useful life. It is the amount that a company anticipates it can recover from the asset when it is no longer in use, after accounting for depreciation and wear and tear. This value is crucial for businesses in calculating depreciation expenses, as it helps determine the total amount that can be depreciated over the asset's useful life.

In accounting, when an asset is purchased, it typically loses value due to factors such as age, usage, and market conditions. The salvage value allows companies to assess how much value will remain after the asset has been fully depreciated. This figure is essential for financial reporting and for making informed decisions about asset management and replacement.

While the original cost of the asset is important, it does not capture the value at the end of the asset's life. Similarly, the concept of the value of an asset after depreciation is related but does not explicitly define salvage value, as it is specifically the estimated amount available at the asset's disposal. Finally, the market value of an asset can fluctuate and may not be known at the time of acquiring the asset or calculating depreciation; it can also differ from the pre