Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. It is also known as scrap value or residual value. Salvage value is an important component in the calculation of a depreciation schedule. The estimated salvage value is deducted from the cost of the asset to determine the total depreciable amount of an asset. If the salvage value is too high or too low, it can be harmful to a company. Salvage value is not discounted to its present value. The Internal Revenue Service (IRS) requires companies to estimate a “reasonable” salvage value. The value depends on how long the company expects to use the asset and how hard the asset is used. If it is too difficult to determine a salvage value, or if the salvage value is expected to be minimal, then it is not necessary to include a salvage value in depreciation calculations. Instead, the entire cost of the fixed asset can be depreciated over its useful life. The formula for calculating the salvage value is starting from the original cost of purchase, we must deduct the product of the annual depreciation expense and the number of years.