In the context of depreciation, what does "salvage value" refer to?

Salvage value is defined as the estimated residual value an asset is expected to have at the end of its useful life. This figure reflects the amount the owner anticipates receiving from selling the asset after it has been fully used for its intended purpose. It plays a crucial role in the calculation of depreciation, as it impacts the total depreciable amount of the asset. The depreciable base is determined by subtracting the salvage value from the initial cost of the asset, allowing businesses to allocate the cost of the asset over its useful life more accurately.

In this context, the initial cost of the asset refers to what was originally paid to acquire it and does not take into account any future value. The amount spent on repairs is considered maintenance and does not factor into the asset's depreciable value. Similarly, the cost of installation is part of the acquisition cost but is distinct from the salvage value, as it pertains to the expenses incurred in preparing the asset for use rather than its end-of-life value.