 Hello in this lecture we will define salvage value according to fundamental accounting principles while 22nd edition the definition of salvage value is estimate of amount to be recovered at the end of an asset's useful life also called residual value or scrap value. So when we're thinking about the salvage value we're generally thinking about property plants and equipment fixed assets depreciable assets those assets that are going to be put on the books have an extended useful life that will then need to be depreciated over time the idea of salvage value being what that asset will be worth at the end of its useful life. We have an asset here we're going to say this is property plant equipment we have a tank here and the tank's going to help us to earn revenue in the future that's why it's going to be a property plant and equipment type of asset we're going to put it on the books as equipment. The idea of the salvage value is that at the end of its useful life after we've used it in order to help us generate revenue we will then still have a value in that equipment that we can dispose of the equipment for in terms of the salvage value it's important to note in a couple different things one area we need to know a salvage value in is when we calculate depreciation most common example of depreciation being straight line depreciation calculation looking something like this we would take the cost of the equipment and then we're going to subtract out the salvage value the amount that we believe that we are going to receive for that equipment or the value of the equipment at the end of the useful life that gives us the amount that we're going to depreciate over that time period therefore we're going to depreciate it down to the salvage value if we say that there's a useful life of four years for example we can take the amount to be depreciated divided by four that would give us the straight line depreciation idea being that over the useful life we're going to use it for four years we're going to depreciate an even amount over that four years giving us a total depreciation at the end of four years accumulated depreciation of this 237 500 which will leave a book value of the cost minus this 237 500 of the salvage value the amount we believe that the equipment will be worth at the end of the useful life