What is scrap value
Scrap value refers to the residual worth of a machine, building, or similar asset when it reaches the end of its useful life. This could be an excavator that has succumbed to wear and tear or an office space that has become inadequate for the company’s needs.
The terms “residual value” and “disposal value” are interchangeable with scrap value. Collectively, they illuminate the value of an asset when it is no longer in use, slated for disposal, scrapping, or abandonment.
How to find scrap value
Identifying the scrap value is standard practice when selling or scrapping an asset that is no longer viable for use. It represents the amount someone else is willing to pay for the item post its utility phase.
In the realm of business accounting, assets with a value surpassing a designated threshold and anticipated to endure over several years are recorded as assets. This could encompass purchases such as company cars, construction machinery, cameras, tractors, or office spaces.
Assets are subject to depreciation. Depreciation involves systematically reducing the value of an asset as it ages. Once an asset is fully depreciated, meaning its depreciation period aligns with its anticipated lifespan, the scrap value becomes evident in the accounting records.
Declining balance depreciation and straight-line depreciation
Two prevalent methods for depreciating assets are declining balance depreciation and straight-line depreciation. Under declining balance depreciation, a fixed percentage is deducted from the asset’s value annually. The Norwegian Tax Administration’s website provides applicable rates for various assets.
Conversely, straight-line depreciation entails a fixed annual deduction, determined by dividing the asset’s value by its anticipated lifespan. This method allows for a more precise representation of the asset’s value over time.