To summarize, it is the value of an asset after its useful is over. Scrap value is an estimated figure. It can be calculated if we can determine the depreciation rate and the useful life. In the US, for tax purposes, the depreciation is calculated by assuming the scrap value as zero.

When scrap value is not given we directly calculate depreciation on the coat of asset.

How to Calculate Depreciation When Scrap Value is Not Given?

Depreciation is the reduction in the value of an asset over time due to wear and tear, obsolescence, or any other factors. It is important to calculate depreciation accurately in order to determine the true cost of an asset and allocate expenses accordingly. However, calculating depreciation can be a bit challenging when the scrap value of the asset is not given. Here's a step-by-step guide on how to calculate depreciation in such cases:

1. Determine the Useful Life of the Asset:
The useful life refers to the estimated period during which the asset will be productive and provide economic benefits. It is essential to estimate the useful life of the asset as accurately as possible. The useful life can be based on industry standards, manufacturer's recommendations, or previous experience with similar assets.

2. Calculate the Depreciable Cost:
Depreciable cost is the original cost of the asset minus its salvage value. Since the scrap value is not given in this case, assume that the asset has no residual value. Therefore, the depreciable cost will be equal to the original cost of the asset.

3. Choose a Depreciation Method:
There are various methods available for calculating depreciation, such as the straight-line method, declining balance method, and units of production method. In this guide, we will focus on the straight-line method.

4. Apply the Straight-Line Method:
The straight-line method is the simplest and most commonly used method for calculating depreciation. It assumes that the asset depreciates evenly over its useful life. To calculate depreciation using the straight-line method, follow these steps:

- Divide the depreciable cost by the useful life of the asset to determine the annual depreciation expense.
- Divide the annual depreciation expense by the number of periods in a year to determine the periodic depreciation expense (e.g., monthly, quarterly, or annually).

Example:
Let's say you purchase a machine for $10,000 and estimate its useful life to be 5 years. Since the scrap value is not given, assume it to be zero. Using the straight-line method, the annual depreciation expense would be $10,000 divided by 5, which equals $2,000. To determine the monthly depreciation expense, divide the annual depreciation expense by 12, resulting in $166.67.

Conclusion:
Calculating depreciation without a given scrap value can be done using the straight-line method. By determining the useful life of the asset, calculating the depreciable cost, and applying the straight-line method, you can accurately estimate the depreciation expense. This information is crucial for financial reporting, budgeting, and decision-making within an organization.