Residual value (salvage value)

Associated with the accounting for long-term ASSETS, residual value, alternatively called salvage value, is the estimated disposal value of an asset at the end of its useful life. Residual value is the proceeds a firm expects to receive if a long-term asset is sold after it has been fully depreciated. Because the residual value is expected to be recouped when the asset is sold, the BOOK VALUE (or carrying value) of a long-term asset cannot be less than the asset’s residual value. In other words, assets cannot be depreciated to the extent where the accumulated DEPRECIATION results in a book value lower than salvage value. Thus, a long-term asset is fully depreciated when its book value is equal to its salvage value. In terms of the asset’s depreciation schedule, this occurs at the end of the asset’s useful life.