The Accounting Review Vol. 48 No. 1 1973
Probabilistic Depreciation with a Varying Salvage Value.
Abstract
The article examines the implications of allowing salvage value to vary over the life of the asset in financial statements. Theoretically, probabilistic depreciation is vastly superior to deterministic depreciation. In probabilistic depreciation, depreciation is calculated for each possible service life, and then the average is taken, using the probability distribution of service life to weight the depreciations calculated. Whereas acquisition cost is essentially an objectively determined dollar amount, future salvage value is not. Salvage values are really only subjective guesses or estimates. It is the author's contention that salvage value is not necessarily constant, a varying salvage value can be incorporated into the probabilistic depreciation model. It takes little imagination to realize salvage value could vary over an asset's life. In most situations salvage value would vary inversely with asset service life. If probabilistic depreciation is to be implemented, allowance for varying salvage value should be incorporated. Salvage value can vary over time.
- DOI
- 10.2308/tar-4483405
- Volume
- 48
- Issue
- 1
- Pages
- 50-60
- Language
- en
- Sources
- openalex crossref