What formula is used to determine a total loss?

The formula used to determine a total loss is based on whether the sum of salvage value and repair costs exceeds the pre-loss value of the asset. This approach takes into account the financial viability of repairing the damaged item compared to its value before the loss occurred. If the costs associated with repairs and any potential salvage do not justify the pre-loss value, the determination is made that the item is a total loss. This method focuses on the economic implications of retaining or repairing an asset versus replacing it, ensuring that the decision reflects the most financially sound outcome.

In this context, assessing total loss via this formula allows for a clear and objective measure of damage in relation to value, which is essential in insurance claims and financial evaluations. The consideration of salvage value helps to offset repair costs in determining whether it is more cost-effective to repair or declare the item a total loss, leading to a straightforward conclusion about the asset's status.