It is one of the constituents of a leasing calculation or operation and is a key concept in accounting.
[3] Residual values are contractually dealt with either in terms of closed or open contracts.
Residual values are calculated using a number of factors, generally a vehicles market value for the term and mileage required is the start point for the calculation, followed by seasonality, monthly adjustment, lifecycle, and disposal performance.
In accounting, the residual value could be defined as an estimated amount that an entity can obtain when disposing of an asset after its useful life has ended.
[5] The formula to calculate the residual value can be seen with the next example as follows: A company owns a machine which was bought for €20,000.