Salvage value is the _______ of an asset after all depreciation has been fully expensed.
- Amarket value
- Bscrap value
- Cdepreciation
- Dbook valueCorrect
Solution
Concept
Salvage value is the book value left after the asset is fully depreciated.
Formula
Book value after n years = Original cost − Total depreciation; at end of life, Book value = Salvage value
Step-by-step solution
1. Depreciation reduces the book value of an asset every year. 2. When all depreciation is fully expensed, the remaining book value equals the salvage value. 3. So salvage value is the book value after full depreciation.
Explanation
Depreciation is charged until the book value falls to the salvage value. After full depreciation, the value left in the books is the salvage value. So salvage value is the book value of the asset at the end of its useful life.
Why the other options are wrong
A: Market value can change with demand and is not tied to depreciation. B: Scrap value is the value of the asset as scrap material, which is not the standard term in this definition. C: Depreciation is the loss in value, not the value that remains.
Shortcut
End of life: book value = salvage value.
Common mistake
Choosing scrap value because in daily use salvage and scrap are treated as similar.
Correct answer: D) book value