What is residual value?
submitted by pere

Vernon

Residual value is the same thing as salvage value. It's what a company estimates an asset might be worth at the end of its useful life. It is used to calculate depreciation. If you know how much it will be worth, roughly speaking, you know how much you'll need to depreciate over time.

For example, if a company buys machinery for $50,000 and expects it to have a residual value of $5,000 after 10 years, the depreciation expense will be based on the $45,000 that will be lost. That's the "depreciable" amount. Of course, this is all an estimate, because there is no perfectly accurate way to know how fast it will wear out. It just helps the records get closer to reality by acknowledging the asset will not always hold its value.

Jimmy Starbucks

It's how much an asset is worth after you've used it for a while. If you buy a car, and after a few years, it's still worth some money, that amount is that residual value. It helps you figure out how much depreciation you can claim.

Sometimes they call this the salvage value, because you're not selling your new equipment, you're selling your worn out stuff for whatever you can get from it.

rob

It's basically the leftover worth of something after you've used it for a while. Your old, worn out table saw might be worth a bit of money when you sell it, but not nearly as much, otherwise you'd keep using it.

It's not meant to calculate the value of something you've used for a bit. It's meant to calculate how badly it will have aged by the time you finally decide to replace it. Because of this, it's also called scrap value. You may not stop using some equipment until it completely goes out. Then you're selling broken leftovers. As such, this figure probably isn't very high usually.