Correct Answer - Option 2 : Salvage value
Concept:
Salvage value:
- It is the value of the property at the end of the utility period without being dismantled.
- Salvage value is the book value of an asset after all depreciation has been fully expensed.
- Salvage value will influence the total depreciable amount a company uses in its depreciation schedule.
Scrap value:
- It is the value of the property at the end of the utility period after being dismantled.
- Scrap products in a building are steel bars, steel grills, bricks, etc.
Market value:
- It is the value of property or building if it is put in the open market for sale.
- Market value changes from time to time and depends on the cost of material, labor cost, industrialization.
Book value:
- The amount of any property after necessary depreciation.
- Book value = Origional cost - depreciation
- After the utility period, Book value = Scrap value
Depreciation:
It is the gradual reduction in the price of a building due to obsolesce, design change, etc.
Different methods of depreciation:
1). Straight-line method:
When the value of the property is being decreased by a constant amount.
\({\bf{Depreciation}} = \frac{{{\bf{Original}}{\rm{ }}{\bf\ {cost}} - {\bf{Scrap}}{\rm{ }}{\bf\ {value}}}}{{{\bf{time}}}}\)
2). Constant percentage method:
\({\bf{Depreciation}} = 1 - {\left( {\frac{{\bf{s}}}{c}} \right)^{1/{\bf{n}}}}\)
Where, S = scrap value, C = Original cost, n = estimated lifetime
