How to Calculate the Net Salvage Value
It is important to determine an accurate and reasonable salvage value when depreciating assets for accounting and tax purposes. Otherwise, you may not be allowed cost-recovery deductions. Salvage value is the estimated residual value of an asset at the end of its useful life, or the proceeds from the disposal of the asset when it can no longer be used in a productive manner. Net salvage value takes into account the costs of disposal to more accurately reflect the residual value of a depreciable asset.
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Instructions
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Consider factors that influence the determination of salvage value for the asset. According to Internal Revenue Service Publication 534, these include how you use the property, how long you use it and disposal policy.
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Estimate the salvage value of the asset. The value will be larger if you maintain a policy that disposes of usable assets, as opposed to a smaller value if your policy is to operate assets until they are no longer useful.
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Subtract the expected cost of disposal of the asset from the salvage value of the asset. This is the net salvage value of the asset. Net salvage value cannot be less than $0.
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Redetermine the net salvage value of the asset anytime over the course of its useful life that damage, repairs or other events cause a change in the useful life of the asset. Reconsider the factors that influence the determination of net salvage value at that time.
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Tips & Warnings
IRS Publication 534 also sates that if personal property has a useful life of three years or more, you can use an amount for salvage value that is less than your estimate. Subtract 10 percent of your basis in the property from your estimated salvage value. Ignore salvage value when calculating depreciation if salvage value is less than 10 percent of the basis.
References
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Comments
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This is not a proper answer to the query; this answers is a more appropriate answer for the question concerning calculating depreciation of said equipment's. Example If there is any salvage value and the amount is unknown (as is the case here), the cost would have to be determined by looking at the data for the double-declining balance method. This example however depends on the individual being presented with a query based on being given information used in a problem where one is given the double-declining balance and it's information.
