Entering salvage value in the Fixed Assets register, the depreciation base is cost less the entered salvage value. The fixed asset is depreciated till value adjustment is equivalent to the difference between cost and salvage value.

Usually the salvage value is in accordance with the SAS 1.19 used only with important items. Disposal costs of tangible asset are also used here. If they are greater than the estimated salvalge value, it is not used in depreciation.

Example 1:

You purchase an office building with building land in the total amount of €500,000. Proceed by entering total value of building and accompanying land in the Fixed Assets register. The building will in case of its disposal be sold together with land.

The land is estimated at €100,000. Normally land is not depreciated and that is why it is entered in the register as salvage value. A 5% depreciation rate will be used for building.

Thus the depreciated amount is in the first year:

(cost - salvage_value) * 5% = annual_depreciation

(500.000 - 100.000) * 5 % = 20.000

The building is depreciated over the period of 20 years (100 / 5 = 20). So long as circumstances remain unchanged, the annual depreciation amount is €20,000.

So, total depreciation value is 20,000 * 20 = 400,000.

Not having entered salvage value, the amount of cost (€500,000) would be used for depreciation base. That is, if you previously selected the 5% annual depreciation rate - making annual depreciation of €25,000.