Examples of residual value in the following topics:
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- Salvage value (or residual value) is the amount of money the company expects to recover, less disposal costs, on the date the asset is scrapped, sold, or traded in.
- Assume a purchased truck is valued at $10,000, has a residual value of $5,000, and a useful life of 5 years.
- Assume a piece of machinery, purchased for $100,000 with a residual value of $40,000, is expected to produce 10,000 units over its useful life.
- Assume a piece of machinery is purchased for USD 100,000 with a residual value of $40,000 and a useful life of 5 years.
- For year 4, the calculation uses the asset's book value ($$100,000 - $20,000$) subtracted by its residual value ($$40,000$) and multiplied by the rate for year 4 $\left( \frac{4}{15} \right)$.
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- An example of how to calculate depreciation expense under the straight-line method -- assume a purchased truck is valued at USD 10,000, has a residual value of USD 5,000, and a useful life of 5 years.
- An example of how to calculate depreciation expense under the units of production -- assume a piece of machinery, purchased for USD 100,000 with a residual value of 40,000, is expected to produce 10,000 units over its useful life.
- To calculate depreciation expense under the sum-of-years-digits -- assume a piece of machinery is purchased for USD 100,000 with a residual value of 40,000 and a useful life of 5 years.
- For year 4, the calculation uses the asset's book value (100,000 - 20,000) subtracted by its residual value (40,000) and multiplied by the rate for year 4 (4/15).
- At the point where book value is equal to the salvage value, no more depreciation is taken.
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- Assume a purchased truck is valued at $10,000, has a residual value of $5,000, and a useful life of 5 years.
- Assume a piece of machinery, purchased for $100,000 with a residual value of $40,000, is expected to produce 10,000 units over its useful life.
- Assume a piece of machinery is purchased for USD 100,000 with a residual value of $40,000 and a useful life of 5 years.
- For year 4, the calculation uses the asset's book value ($$100,000 - $20,000$) subtracted by its residual value ($$40,000$) and multiplied by the rate for year 4 $\left( \frac{4}{15} \right)$.
- At the point where book value is equal to the salvage value, no more depreciation is taken.
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- Depreciation is a measure of how property values decrease.
- Next, how much will the company be able to sell the asset for when it is of no longer of use to the company, or its residual value?
- The value could be based on its scrap value or the fact that the asset may have value to others as is.
- The most common depreciation method type is "straight-line," where the depreciation rate is calculated by subtracting the asset's residual value from its acquisition cost and dividing the result by its useful life.
- To insure that the balance sheet reflects the accurate value of its assets, a business will not decrease the value of each asset as it depreciates.
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- Depreciation expense affects the values of businesses and entities because the accumulated depreciation disclosed for each asset will reduce its book value on the balance sheet.
- The depreciation method chosen should be appropriate to the asset type, its expected business use, its estimated useful life, and the asset's residual value.
- The amount reduces both the asset's value and the accounting period's income.
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- (Accumulated depletion is similar to the accumulated depreciation used for plant assets. ) When analyzing the financial condition of companies owning natural resources, exercise caution because the historical costs reported for the natural resources may be only a small fraction of their current value.
- When the land is not purchased, its residual value is irrelevant and should be ignored.
- In the example where the land was purchased, the total costs of the mineral deposits equal the cost of the site ($650,000) (minus the residual value of land and $50,000) plus costs to develop the site ($300,000), or a total of $900,000.
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- A software company has a patent valued at $10 million with a useful life of 40 years.
- As a result of the impairment, the amortization expense on the patent should be adjusted to reflect the new value.
- The amortization amount is equal to the difference between the intangible asset cost and the asset residual value.
- When an intangible asset's impairment reverses and value is regained, the increase in value is recorded as a gain on the income statement and reduction to accumulated impairment loss on the balance sheet, up to the amount of impairment loss recorded in prior periods.
- Asset amortization for future periods should be adjusted due to the increase in value.
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- Equity is either calculated as proprietary or residual.
- For residual equity dividends to preferred shareholders are deducted from net income before calculating residual equity holders' dividend per share.
- Finally, the balance sheet shows the book value of the owners' stake in the business.
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- Anything capable of being owned or controlled to produce value is considered an asset.
- Simply stated, assets represent value of ownership that can be converted into cash.
- In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets after all liabilities are paid.
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- It is computed as the residual of all revenues and gains over all expenses and losses for the period.
- Price to Earnings Ratio = Market Value of Stock / Earnings per Share
- The P/E ratio is a widely used valuation multiple used as a guide to the relative values of companies.
- The price is in currency per share, while earnings are in currency per share per year, so the P/E ratio shows the number of years of earnings which would be required to pay back the purchase price, ignoring inflation, earnings growth and the time value of money.
- Dividend Yield = (Dividends per Share / Market Value of Stock) x 100