How do you calculate the residual value of a property?


Whether in economics or accounting, the concept of residual value is frequently used, but it is not always easy to understand. Here is a small article which will allow seeing more clearly on its definition, its interests but also its calculation.
What is the residual value?
To define the residual value, many variants exist since each tries to adapt it to its activity. However, the following definition can be accepted: the residual value is "the estimated value of an acquisition at the end of the amortization period”. It therefore corresponds to the value of a property after being used .
If the residual value is never negative, it can be zero, since it is completely possible for certain assets to have no longer any value after a certain period of use.
Applications of the residual value
For a very long time, residual value has been an essential element of the leasing contract, which has been a real success with the trend of car leasing. Indeed, leasing (or leasing with option to purchase) is a contract by which an individual rents a property which he can then acquire, if he wishes. The value of the exercise of the call option generally corresponds to the residual value.

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