scrap

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Residual Value

In accounting, an estimate of the value of an asset at the end of its depreciation. For example, a firm's computer depreciates each year. When it breaks down or becomes obsolete, it has a residual value; it is calculated by the best guess of the net cash inflow when it is sold at the end of its life. It will never be above the blue book value.

In price regulated industries, the residual value may be a negative value because it includes the net cash outflow in removing the asset from where it was used. For example, nuclear energy plants must store the nuclear waste at the end of their useful life. This cost is a contributing factor in the residual value. It is also called the salvage value or scrap value. See also: Absolute Physical Life, Obsolescence.

scrap

seriously defective or damaged components or products that are rejected by a firm's QUALITY CONTROL system as incapable of being rectified and which have to be disposed of for the salvage value of their materials.