Salvage Value

An estimated cash inflow asset is expected to generate as a result of its disposal at the end of its expected economical or useful life.

It is also called scrap value or residual value.

In ideal situation asset must depreciate in accounting books of entity only to the extent that net result is exactly equal to residual value of the asset. For the same reason some depreciation methods deduct expected residual value from the cost of the asset to determine depreciable value which is spread over useful life of asset. Straight-line method of depreciation is one example.

It is important to note that salvage value is expected cash generated by selling or disposing the asset at the end of useful life and not by its continuing use after the expiry of expected useful life.