What is meant by salvage value?

Salvage value refers to the estimated amount that an asset is expected to realize upon its sale at the end of its useful life. This value represents what can be recovered from the asset after it has served its purpose, and it is significant in financial analysis and accounting for asset depreciation. By determining the salvage value, organizations can better calculate depreciation expenses over the asset's lifespan, thus impacting financial statements and tax obligations. In capital budgeting, understanding salvage value helps in assessing the overall return on investment of the asset. Therefore, this understanding underscores the importance of salvage value as it influences the financial planning and resource allocation related to asset management.