The financial accounting term unguaranteed residual value refers to the worth of a lease property at the end of the agreement's term that is not the responsibility of the lessee. Unguaranteed residual values do not qualify as a financial obligation of the lessee, and do not factor into the calculation of the minimum lease payment.
Generally, a residual value is an estimate of the fair market value of the leased property at the end of the agreement's term. As part of the lease, the lessee may provide a guaranteed residual value. If so, this becomes a financial obligation of the lessee, and can result in an additional cash payment to the lessor when the agreement terminates.
Alternatively, the agreement may state the residual value is unguaranteed. The projected fair market value of the leased property is still used in the determination of the monthly lease payment; however, the risk associated with the accuracy of this estimate remains with the lessor. Since the lessee is not responsible for guaranteeing a residual value payment at the end of the lease, they bear no financial obligation to the lessor. This is why an unguaranteed residual value is excluded from the calculation of a minimum lease payment.
Since the terms and conditions of lease contracts will vary, the Financial Accounting Standards Board issued FAS No. 13 - Accounting for Leases, which outlines the criteria used to determine if the agreement should be treated as a capital versus operating lease. The concept of a minimum lease payment is an important variable used in the recovery of investment test (90% test), which is used to determine if an agreement should be treated as an operating or capital lease.
operating lease, capital lease, bargain-purchase option test, transfer of ownership test, economic life test, recovery of investment test, economic life, economic life test, economic life, executory costs, minimum lease payment, guaranteed residual value
Explore Investing Further
Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.