Residual Value Calculator

The Residual Value Calculator allows you to calculate the residual value of an asset based on its scrap / sale rate and expected lifespan. The Residual Value Calculator is particularly useful for consumers looking to buy a new car, understanding the Residual Value of the car after 3 years of ownership helps to identify if purchase of the vehicle is the right financial decision based on the period of use.

Residual Value: The Salvage Value of Your Owned or Leased Assets

What will be your asset's value after it has served its useful life? It's an obvious and crucial question for you to consider while you plan to buy a new asset. Calculating residual value could be the best way to determine the salvage value of your owned or leased assets. This method is particularly useful for fixed assets. Also, this method is useful for both individuals and companies that hold any kind of fixed assets. While it's not feasible for anyone to do these calculations manually, iCalculator provides this free online calculator so you can skip the complex math and focus on making an informed decision.

The residual value calculator is based on three important factors:

• Cost of fixed asset: The cost of the asset in question, at the time of purchase.
• Scrap rate: This could be the resale value or scrap value if you are considering that you can't resell the asset.
• Life Span: Life span or life expectancy can be defined as the useful life of an asset.

Breaking down the Residual Value

On the basis of your inputs entered into the calculator, and using the residual value formula given below, you can get the most accurate residual value of an asset in the blink of an eye.

Let's assume that you are planning to purchase a car for 30k. Given that the life expectancy of the car is 10 years and you are expecting to sell it as scrap for at least 2k at the end of its useful life. The residual value will be 2.8k. This is sum of (cost - scrap value) / useful life. The formula will be applied as shown below:

Why use a Residual Value Calculator?

Let's take a look at how the Residual Value Calculator will benefit you.

• Easy to use: the Residual Value Calculator is the most sophisticated yet easy to use tool; with just a few clicks you can calculate the residual of your assets.
• Time saving: Since the calculator is simple and easy to use, it saves you plenty of time.
• The calculator provides you with accurate results so it's helpful for supporting appropriate accounting techniques for your company's or personal finances.
• The results will help you make better decisions before investing in any assets.

Residual Value of Leased Assets

This method can be applied to both purchased and leased assets. Calculation for both purchased and leased assets are pretty similar. At the time of lease contracts, lessor uses residual value to determine how much lessee pays for lease payments.

If we consider a car lease, the lessor banks determine this value based on past models. The future prediction of salvage value is also a major factor in calculating the residual value of leased assets. This value is then combined with interest rates and tax to compute the lease payments. This is very common with PCP Car Finance.

Residual value is a major factor in corporate leasing too. Other than cars, the residual value method is applied to fixed assets that are used in different industries. The assets are also leased by the banks and are offered for sale after the lease period ends.

Uses of Residual Value

The residual value accounting formula can be used by individuals and corporate bodies; it can help you to identify, plan for and cover the risk of losses in future. Individuals who plan to buy new assets such as cars can benefit by using the residual value method. When you buy expensive cars, you should know if they will be worth selling after they have been used for a certain period of time.

Also, companies that have expensive infrastructure such as machines, heavy equipment and vehicles or medical equipment, always run a risk of loss on the end value of those assets. The method assumes the salvage values many of the companies cover these risks by purchasing insurance policies.

Limitations of the Residual Value Calculation

The Residual Value calculation has one major drawback. It cannot be used to compare the performance of assets of different sizes; you can get higher residual value in bigger businesses and lower residual value for comparatively smaller businesses. This does not happen because of their scale of operations or better management but simply because of their respective sizes, thus they cannot be compared with one another. In the case of machinery and equipment, robust maintenance management systems, servicing and proactive equipment care can increase the disposal value of assets (as well as extending their useful life span).

Calculating Depreciation using Residual value

Residual value plays an important role in the calculation of depreciation. This is an accounting measure for calculating the cost of tangible assets over its useful life. Depreciation is calculated on the basis of base value of an asset. Base value for depreciation is obtained by subtracting the residual value from the capital value. Base value is then used to calculate depreciation.