Residual value - What is the residual value?
Definition: The expected value of the sale of an asset at the end of its estimated useful life.
The residual value is a measure of the smallest value that an asset can be written to. Every asset has a constant value, even though it depreciates in value because of time and use. An assessment of what the asset will be worth at the time that it is no longer in use results in the residual value of the asset.
The residual value will ultimately be deducted depreciation.
Factors that determine the residual value
The residual value of an asset depends on many different things. Initially, the value assessed by the probability that there is an active market for the asset at the end of its useful life.
For example buildings, in most cases, are able to maintain a high residual value, whereas specialized machines often have a low residual value – because they depreciate rapidly.
To speak in general terms, the more often that an asset can be used, the higher residual value it will be assigned.
In Debitoor, the residual value arises primarily in relation to fixed assets.