What Is Capital Equipment Residual Cost?

Accounting is a business activity that helps companies value their assets and calculate the final value for equipment. Many companies use equipment to produce the goods and services sold to consumers. The residual cost --- more commonly known as residual value --- is a cost associated with selling off a useless asset.

Definition

Capital equipment represents the long-term assets a company will use in its operations. Companies purchase these with the intent of using them for several years, known as the asset's useful life. Using depreciation, the company will calculate the asset's residual value.

Features

The residual value of capital equipment is the item's purchase price recorded in the general ledger less accumulated depreciation. For example, an asset purchased at $50,000 with accumulated depreciation of $40,000 has a residual value of $10,000.

Purpose

The residual value is the price at which a company expects to earn when selling assets that are no longer in use by the company. Capital equipment may have a residual value of zero, meaning the company used the item to the point where no other business would have an interest in it.

References

• Entrepreneur: Capital Equipment
• Business Dictionary: Residual Value