Residual value of fixed assets

The residual value of property, plant and equipment corresponds to their original value, with the exception of depreciation accrued over the life of the asset.

During the useful use of fixed assets, depreciation is made to accumulate funds to restore the fixed assets that are subject to moral and physical deterioration. The amount of these deductions is influenced by the useful life. This category is understood as the time interval when the use of the object brings a certain income to the enterprise and serves as a means for achieving the set goals.

Residual value of fixed assets

The useful life period is calculated on the basis of the projected lifetime of the facility with the required power, performance and wear levels under certain operating conditions of the organization. The operating conditions depend on the number of work shifts, the effectiveness of repair and maintenance work, and the aggressiveness of the surrounding impact. The criterion for determining the useful life of an object is the regulatory and legal conditions for the operation of the facility. For example, when a fixed asset is transferred to trust management, the determination of the useful life of the asset will be carried out in accordance with the clauses of the contract.

To calculate the residual value, it follows from the initial value of the asset to deduct the amount of depreciation. The residual value is often called balance sheet, because it is reflected in the balance sheet of the enterprise. Due to the fact that the initial cost is the factor determining the book value of fixed capital , the correctness of determining the residual value of an object depends on its real precise definition. In addition, the amount of depreciation will depend on the amount of the initial cost. The methodology for determining the initial cost does not take into account such factors as inflationary, innovative processes that reduce the cost of production, and at the same time, the value of fixed assets.

Thus, as the fixed assets market changes , the enterprise regularly performs a revaluation, which changes the original value. Usually such a revaluation is made at the beginning of each year.

In accounting, the residual value is reflected in the two accounts "Amortization of fixed assets" - 02 and "Fixed assets" - 01, which take into account the movement and condition of fixed assets.

The first of these accounts shows depreciation. In his debit, depreciation is charged in the event of the retirement of a fixed asset and the adjustment that occurs when revaluing in the event of a decrease in the initial cost. The account credit displays the opening balance, the accrued depreciation and the adjustment made upon the increase after the revaluation of the initial value of the asset. The final balance reflects the amount of accumulated depreciation.

On the account "Fixed Assets" shows their state at a replacement cost. The debit of this account takes into account the replacement value of the remaining fixed assets, the initial value of the new assets and the increase in the initial value due to revaluation or reconstruction. The loan reflects the original cost of retirement of fixed assets, which is divided by the amount in which the depreciated value and depreciation are reported.

With the help of both accounts, the real residual value is determined, which is calculated as the difference in the balance of the account "Fixed Assets" and accounts 02.