If salvage value increases while the purchase price remains constant, the depreciation expense will

• A. Decrease
• B. Increase
• C. No change
• D. Could be either depending on other factors

Answer: (A)

Depreciation expense is based on the depreciable base, which is the cost minus the salvage value. If the salvage value goes up while the purchase price stays the same, the amount that can be depreciated decreases. In straight-line depreciation, annual depreciation equals the depreciable base divided by the useful life, so a smaller base means smaller annual depreciation. Therefore, depreciation expense decreases. The other options don’t fit the usual depreciation calculation unless a different method or life is specified.