The residual value (salvage value) of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
Residual value is the value remaining in the asset at the point in time when the asset has deteriorated to a point that it must either be closed or renewed, and is therefore not usually the same as scrap value. The Australian Accounting Standards Board recognises that the renewal of an asset represents the disposal of the existing asset and the creation of a new asset with a new Useful Life.
Australian Accounting Standards Board
The Australian Accounting Standards Board has ruled that residual values should only be applied to reflect expected net receipts from disposal of an asset to another party at the end of its useful life, i.e. sale to an external party. Expected savings to an organisation from renewal rather than replacement of an asset should not be recognised as a residual value. Such 'savings' are appropriately and fully recognised instead by componentising assets into shorter and longer-lived components, valuation as modern equivalent assets and depreciating the components over their expected useful lives. 3
Section 54 of AASB 116 states that the residual value of an asset may increase to an amount equal to or greater than the asset's carrying amount. If it does, the asset's depreciation charge is zero unless and until its residual value subsequently decreases to an amount below the assets carrying amount.
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