Calculating depreciation with Salvage value

Straight line method

Example 1
Asset purchase price: R 1000

Salvage value: 200

Asset lifespan: 5 years

The salvage value of the asset is the value the asset can be sold for after its
useful life.
Hence no matter the depreciation method used, whenever you given a salvage value, One must
subtract it from the Asset purchase price in calculating its depreciation and book value.

If it is company policy to depreciate assets at eg 20% on str line method then you used company
policy, but if the question is silent on the % of depreciation to use, then you must use asset life span
. In this eg above let’s use asset lifespan to calculate depreciation

FORMULA
(Cost price – Salvage value)/ Asset life span
Example 1

( 1000 – 200) /5

= 160

Depreciation is R 160

Journal Entry
Dr Asset 1000

Cr Bank 1000

Asset purchased

Dr Depreciation 160

Cr Acc Depreciation 160

Depreciation at year end

PLEASE NOTE SALVAGE VALUE AND SCAP VALUE MUST BE TREATED THE SAME WAY, IT IS
THE RECOVERABLE AMOUNT AT THE END OF THE LIFE SPAN OF THE ASSET.