Final answer:
The salvage value is treated as a floor that depreciation does not breach when using the declining balance method, with depreciation stopping once the book value equals the salvage value.
Step-by-step explanation:
When utilizing the declining balance method of depreciation, salvage value is not directly deducted from the asset's cost to determine the depreciation base as it is with other methods. Instead, the asset is depreciated aggressively in the early years with the application of a constant depreciation rate to the book value of the asset, which declines each year. The salvage value is considered at the end of the asset's useful life. The depreciation stops once the book value is equal to the salvage value, ensuring that the asset is not depreciated below this amount.
In summary, under the declining balance method, depreciation is calculated without initially subtracting the salvage value; the salvage value is a threshold that signals when to stop depreciating the asset.