Learn How to Calculate Residual Value - Tutorial

How to Calculate Residual Value - Definition, Formula and Example

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.

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'.

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