What is residual value?
Residual value is an estimate of the value of an asset, once it becomes obsolete or simply no longer useful to a company.
Toad family billing software makes life easier for micro-entrepreneurs, helping them manage the value of their assets. Who said that managing your business had to be complicated?
The residual value can also be called the net book value.
Why is the residual value important?
In accounting, the cost of an asset is recorded as a recurring expense, over its useful life, rather than as a single cost.
This process of depreciating the property, and allocating its cost over its entire useful life, is called depreciation or impairment. Depreciation refers to the loss in value of tangible assets over time and over time. their usage.
To accurately calculate the depreciation or depreciation of an asset, the question is:
- how much did the asset cost to purchase?
- what is its estimated useful life, and therefore how long can it be operational?
- how much the asset will be worth at the time of its resale or destruction (because of its uselessness for the company)?
How to calculate the residual value
Many assets have a residual value of € 0, in particular assets that will be held until their natural destruction and assets that can not be sold at the end of the period.
If you plan to sell the asset at the end of its useful life, then the residual value is the amount at which you can expect to sell it.
In fact, if you plan to sell the asset in a short time, you have to estimate its residual value by taking into account factors such as usury and technological innovation, which will affect the value of the asset.
If it is too difficult to determine the residual value or if it is insignificant, it is not necessary to include it in depreciation or amortization calculations.
Instead, you can depreciate the total cost of the asset over its useful life, and therefore estimate its residual value at 0.
If the asset is resold more expensive than its residual value, it must be recorded as a gain. If, in the end, the residual value is less than originally calculated, the difference must be recorded as a loss.
Toad family and the calculation of the residual value
Toad family allows you to manage your billing and track the value of your fixed assets, with ease. When you create a new expense, you have the option to mark it as an asset.
Then enter its residual value and the estimated useful life for this asset, then let Toad family do the rest! Using linear depreciation, Toad family will automatically allocate the cost of the asset over its useful life.