Glossary

Residual value

In short

Residual value, sometimes called salvage value, is the amount you estimate an asset will be worth at the end of its useful life. It matters because depreciation is charged on the depreciable amount, the cost less the residual value, not on the full cost. In Cohiva Control the residual value also acts as a floor: depreciation never reduces book value below it. This is general information, not accounting or financial advice.

Residual value

Residual value, also called salvage value, is the amount you estimate an asset will be worth at the end of its useful life. It is the figure you expect to recover, whether by sale, trade-in or scrap, once the asset has done its job for you. Residual value is set as an estimate when you bring an asset onto the books, and it shapes how much depreciation the asset carries.

This page provides general information about an accounting term. It is not accounting, tax or financial advice. Confirm treatment with your accountant or adviser.

Why residual value matters

Depreciation is not charged on an asset’s full cost. It is charged on the depreciable amount, which is the cost less the residual value:

  • Depreciable amount equals cost minus residual value.

So an asset costing 42,000 with a residual value of 2,000 has a depreciable amount of 40,000, and that 40,000 is what gets spread across the useful life. A higher residual value leaves a smaller depreciable amount, which means smaller charges each period; a residual value of zero means the full cost is depreciated. Getting the estimate sensible matters, because it changes the size of every depreciation charge.

Residual value versus net book value

It is easy to mix up residual value and net book value. Residual value is a fixed estimate set up front: what the asset will be worth at the end. Net book value is the current carrying amount, the cost less the depreciation charged so far, which changes every period. Over an asset’s life the net book value falls toward the residual value and then stops there.

How Cohiva Control uses it

Cohiva Control uses the residual value in two ways. First, it forms the depreciable amount that the six methods spread across the asset’s life. Second, it acts as a book-value floor: depreciation never reduces an asset’s book value below its residual value, so the schedule lands cleanly at residual rather than overshooting. Money is held as a fixed-precision decimal rounded half up, so the floor is respected exactly, to the cent.

Part of the Cohiva platform

Cohiva Control is part of the Cohiva platform. Leisure operators often run it with Cohiva Complex, and finance teams connect it to Cohiva Crunch for the general ledger. Explore the platform at www.cohiva.app.

Frequently asked questions

How does residual value affect depreciation?
Depreciation is charged on the depreciable amount, which is the cost minus the residual value. A higher residual value means a smaller depreciable amount and therefore smaller depreciation charges over the life.
What is the difference between residual value and net book value?
Residual value is the estimated worth at the end of useful life, set when you configure the asset. Net book value is the current carrying amount, cost less accumulated depreciation, which changes each period and falls toward the residual value.
Can residual value be zero?
Yes. If you expect an asset to be worth nothing at the end of its life, its residual value is zero, and the full cost becomes the depreciable amount.