What is Salvage Value?
Salvage value (also called residual value) is the estimated amount an entity expects to recover from disposing of a fixed asset at the end of its useful life, net of disposal costs, deducted from the asset’s cost when computing depreciation.
How It Works
- Depreciable amount = cost – salvage value.
- Depreciation method (straight-line, declining balance) applied to depreciable amount.
- Reviewed annually under IAS 16; revisions handled prospectively.
- Zero salvage assumed when no reliable estimate is available.
Saudi Context
Saudi companies depreciating fleet vehicles (delivery trucks, construction equipment) often assume a salvage value of 10% to 15% of cost based on Saudi second-hand market values. Real estate, IT equipment, and office furniture typically use zero salvage value because reliable resale data is unavailable.
Example
A Saudi business buys a delivery truck for SAR 200,000 with an estimated salvage value of SAR 30,000 after 5 years. Depreciable amount = 200,000 – 30,000 = SAR 170,000. Annual straight-line depreciation = SAR 34,000.
