In financial accounting, scrap value is associated with
the depreciation of assets used in a business. In this situation,
scrap value is defined as the expected or estimated value of the asset at the
end of its useful life. Scrap value is also referred to as an asset's
salvage value or residual value. The following example illustrates how the
scrap value is used.
A business acquires equipment at a cost of $150,000 and estimates that its scrap value will be $10,000 at the end of its useful life of 7 years. The annual straight-line depreciation expense will be $20,000 [($150,000 cost minus $10,000 scrap value) divided by 7 years].
A business acquires equipment at a cost of $150,000 and estimates that its scrap value will be $10,000 at the end of its useful life of 7 years. The annual straight-line depreciation expense will be $20,000 [($150,000 cost minus $10,000 scrap value) divided by 7 years].
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