What Is Residual Value?
The value left at the end of an asset’s life, and why it matters for depreciation.
Home › Accounting Glossary › Residual Value
| Also called | Salvage value, scrap value |
|---|---|
| Used in | Straight-line depreciation |
| Topic | Financial accounting · Non-current assets |
Residual value in plain English
Most assets are not worthless when you finish with them. A delivery van may still sell for something. Only the part of the cost that will actually be used up needs to be spread through depreciation, so the expected resale value is taken out first.
Worked example
A van costs 20,000 and is expected to be sold for 5,000 after 5 years.
Depreciable amount = 20,000 − 5,000 = 15,000. Straight-line depreciation = 15,000 ÷ 5 = 3,000 a year. After 5 years the book value is 5,000, the residual value.
- Confusing residual value with book value. Book value changes each year, while residual value is an estimate of the final value.
- Forgetting that residual value is an estimate. It can be revised if circumstances change.
Frequently asked questions
Can residual value be zero?
Yes. If the business expects to recover nothing, the whole cost is depreciated.
Is residual value the same as scrap value?
They mean much the same thing. Scrap or salvage value is what the asset is expected to fetch when disposed of.
Does residual value affect reducing balance depreciation?
In the basic method the percentage is applied to book value, but depreciation stops once the book value reaches the residual value.
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This page is for general learning. Accounting rules vary by country and standard.