How to Calculate Residual Values

Another term for residual value is liquidation or book value.

An asset is only good for a certain period of time; that is, it only provides value or creates income for a certain time period before it is no longer useful. Residual value is the value of an asset after its useful life. As such, it is commonly used to determine depreciation expense for the income statement or liquidation value for larger transactions like bankruptcy.

Instructions

1. Determine the scrap value of assets by contacting a junk yard, scrap metal, or vehicle parts store for scrap value quotes which are based on weight and quality. While assets provide no additional value they may have scrap value; that is, they could be composed of valuable materials like metal or gold.

2. Determine the residual value of real estate. In general, the residual value of real estate is the pure land value without the general structure. Obtain comparable lot value (land with no structure) prices from your favorite real estate agent.

3. Calculate the residual value for a company. In general, the residual value for companies is referred to as the book value which is also Stockholders' Equity on the Balance Sheet. Stockholders' Equity can be calculated by subtracting all the liabilities from assets of a firm. For instance, if assets are valued at $10,000 and liabilities are valued at $$6,000, then the residual value (stockholders' equity) is $10,000 - $6,000 = $4,000.

References

• Investopedia: Liquidation Value
• Investopedia: Digging Into Book Value