Question

True or False: Increasing the salvage value increases depreciation expense.

Answer 1

Increasing the salvage value of an asset actually decreases the annual depreciation expense because it reduces the total amount to be depreciated over the asset's useful life.

Step-by-step explanation:

The statement that increasing the salvage value increases depreciation expense is false. Salvage value is the estimated resale value of an asset at the end of its useful life. Depreciation expense is calculated as the cost of the asset minus its salvage value, spread over the useful life of the asset. Therefore, if you increase the salvage value, you decrease the amount that is depreciated each year, which in turn lowers the annual depreciation expense.