Which statement about salvage value is true?

• A. Salvage value is the estimated useful life of the asset
• B. Salvage value is the initial cost of the asset
• C. Salvage value is the estimated amount expected to be received at the end of the asset's useful life
• D. Salvage value is not used in depreciation calculations

Answer: (C)

Salvage value is the estimated amount you expect to receive for an asset at the end of its useful life. This figure is used to determine the depreciation base, because you’re spreading the cost minus what you’ll still get back over the asset’s life. That’s why the statement about salvage value being the estimated amount expected to be received at the end of the asset’s useful life is true.

It’s not the estimated useful life itself, nor the initial cost of the asset. The initial cost is what you pay to acquire the asset, not what you’ll recover later. And salvage value does play a role in depreciation calculations, reducing the amount that gets expensed over time.

Example: if an asset costs 50,000 and has a salvage value of 5,000 over a 10-year life, the depreciation base is 45,000, so straight-line depreciation would be 4,500 per year.