The residual value of fixed assets corresponds to their initial cost with the exception of depreciation accrued over the life of the asset.
During the useful use of fixed assets, depreciation is charged to accumulate funds for the restoration of fixed assets subject to moral and physical depreciation . The size of these contributions is affected by the useful life. This category refers to the time period when the use of the object brings a certain income to the enterprise and serves as a means to achieve its goals.
Residual value of fixed assets
The useful life is calculated on the basis of the projected duration of the facility with the required parameters of power, performance and degree of wear under certain operating conditions of the organization. Operating conditions depend on the number of work shifts, the effectiveness of repair and maintenance work, and the environmental aggressiveness. The criterion for determining the useful life of the facility are the regulatory and legal conditions of the facility. For example, when a fixed asset is transferred to trust, the determination of its useful life will be carried out in accordance with the clauses of the contract.
To calculate the residual value, it follows from the initial cost of the fixed asset to deduct the amount of depreciation. The residual value is often called the book value, because it is reflected in the balance sheet of the enterprise. Due to the fact that the initial cost is a factor in determining the book value of fixed capital , the correctness of determining the residual value of an object depends on its real exact determination. In addition, the amount of depreciation will depend on the size of the initial cost. According to the methodology for determining the initial cost, factors such as inflationary, innovative processes that reduce the cost of production and, at the same time, the cost of fixed assets are not taken into account.
Thus, as the market for fixed assets changes, the company regularly reevaluates, which changes the initial cost. Typically, such revaluation is carried out at the beginning of each year.
In accounting, the residual value is reflected in two accounts “Depreciation 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. His debit includes write-off of depreciation in the event of disposal of the fixed asset and the adjustment arising from revaluation in the event of a decrease in the initial cost. The credit of the account displays the opening balance, accrued depreciation and the adjustment made when the initial value of the fixed asset increases after revaluation. The closing balance reflects the amount of depreciation accumulated.
The account "Fixed assets" shows their condition at replacement cost. The debit of this account takes into account the replacement cost of the remaining fixed assets, the initial cost of new assets and the increase in the initial cost due to revaluation or reconstruction. The loan reflects the initial cost of disposal of fixed assets, which is divided by the amount in which the residual value and depreciation are shown.
Both accounts determine the real residual value, which is calculated as the difference between the balance of the Fixed Assets account and account 02.