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How to Calculate Salvage Value of a Building?

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3 2023-05-19T10:57:18+00:00
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The salvage value of a property is the estimated value or expected resale value of a building or property at the end of its useful life. You must know how to calculate salvage value of a building if you are in the real estate business or want to know the value of a property. Let me share the methods used to calculate the salvage value.

How to Calculate Salvage Value of Building?

Based on the industry the determination of salvage value depends There are three ways to calculate it-

  1. In method 1, the number of years the asset has been used is calculated. Then the sale price of a similar asset is determined. If both values vary, then the average of both assets is considered the salvage value.

  2. In method 2, a formula is used to determine the salvage value. The formula is SV = P(1-i)y.

  • Here, P is the original cost of the asset.

  • I is the depreciation rate, and

  • Y is the number of years.

  1. In some cases, the salvage value can be taken as zero.

Since the second method is mostly used to determine the salvage value of a building, let me cite an example using that formula.

SV = P(1-i)y

Let P= Rs.1200000

i = 10%

y = 5 years

So SV = 1200000 (1-0.1%)^5 = 70858.8.

What is the difference between residual value and salvage value?

People often use residual value and salvage value interchangeably. Residual values are also known as break-up values, scrap values, and salvage values. In cases of leases, the residual value is the primary metric for calculating how much a lessee pays in periodic lease instalments. The longer the useful life or lease period, the lower the residual value will be. 

The meaning of salvage value and how to calculate salvage value of a building should be clear to you by now.

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