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What is the meaning of Scrap Value in accounting?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 rohith asked almost 3 years ago

Hi I am Rohith. I am preparing for CA Intermediate | CA IPCC exam. Can I know, What is the meaning of Scrap Value in accounting?

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4 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 acharya answered over 2 years ago

A business acquires equipment at a cost of $150,000 and estimates that its scrap value will be $10,000 at the end of its useful life of 7 years. The annual straight-line depreciation expense will be $20,000 [($150,000 cost minus $10,000 scrap value) divided by 7 years]. Accountants and U.S. income tax regulations often assume that for the depreciation calculation the asset will have no scrap value. (If cash is received when the asset is scrapped, any amount that is in excess of the asset's carrying value will be reported as a gain.) In cost accounting, scrap value often refers to the amount that a manufacturer will receive from materials or products that will be scrapped.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered over 2 years ago

A business acquires equipment at a cost of $150,000 and estimates that its scrap value will be $10,000 at the end of its useful life of 7 years. The annual straight-line depreciation expense will be $20,000 [($150,000 cost minus $10,000 scrap value) divided by 7 years]. Accountants and U.S. income tax regulations often assume that for the depreciation calculation the asset will have no scrap value. (If cash is received when the asset is scrapped, any amount that is in excess of the asset's carrying value will be reported as a gain.)

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Open uri20170510 32134 4ptgjl?1494421814 Harish Ojha answered almost 3 years ago

In financial accounting, scrap value is associated with the depreciation of assets used in a business. In this situation, scrap value is defined as the expected or estimated value of the asset at the end of its useful life. Let's assume you buy a car for $20,000. You believe the car could last for 15 years. After that, the car is probably "run into the ground," and its next stop is the junkyard. The scrap value of the car is the price a junkyard or recycler might pay you for the old, nonworking car. In the business world, scrap values are very important because they help companies calculate depreciation. For example, let's assume Company XYZ purchases a piece of machinery for Rs. 1 Lakh, and that piece of machinery is expected to last for 10 years. After that, the machinery is estimated to be worth, say, Rs. 10,000. Thus, Company XYZ would record a depreciation expense equal to Rs. 90,000 over 10 years (there are a variety of ways to do that).

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Open uri20170510 32134 1uwcnoc?1494421631 Shubhangi Jain answered almost 3 years ago

In financial accounting, scrap value is associated with the depreciation of assets used in a business. In this situation, scrap value is defined as the expected or estimated value of the asset at the end of its useful life. Scrap value is also referred to as an asset's salvage value or residual value. The following example illustrates how the scrap value is used. A business acquires equipment at a cost of $150,000 and estimates that its scrap value will be $10,000 at the end of its useful life of 7 years. The annual straight-line depreciation expense will be $20,000 [($150,000 cost minus $10,000 scrap value) divided by 7 years]. Accountants and U.S. income tax regulations often assume that for the depreciation calculation the asset will have no scrap value. (If cash is received when the asset is scrapped, any amount that is in excess of the asset's carrying value will be reported as a gain.) In cost accounting, scrap value often refers to the amount that a manufacturer will receive from materials or products that will be scrapped.

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