Why residual value (salvage value) is not allocated to the useful life of a depreciable asset?


Scrap value or salvage value or residual value is the value which we expect to receive by selling an asset at the end of its useful life. So basically it is the monetary value of the economic benefits that will be recovered from the asset by selling the asset and not through use of the asset and depreciable value is basically the total of economic benefits that are rendered through use of the asset or some other factors.

In other words, if we still have some utility left in the asset then it must hold some economic value and that can be monetized therefore, we cannot reduce the value of asset to zero. And if all of the assets have zero residual value then we must not receive anything on the sale of the asset which is hardly the case.


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