#### Definition:

Residual value is a leasing method, which signifies the future value of an asset in terms of depreciation percentage of the asset's basic value. It is also termed as open or closed contracts.

#### Formula:

Residual Value = (Cost of fixed asset - Scrap rate) / Lifespan
#### Example:

Cost of a machine is Rs 5000 and its scrap rate is determined as 1000. Life span of the machine is estimated as 5 years.

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Given,

Cost of the asset = 5000
Scrap rate = 1000
Machine's lifespan = 5 years

##### Solution :

Residual Value = (Cost of fixed asset - Scrap rate) / Lifespan
= 5000 - 1000 / 5
= 4000 / 5
= 800
Therefore, the residual value of the asset is '800'.