Residual value guarantee
A guarantee made by the lessee of the value of the underlying asset at the end of the lease.
Definition
A residual value guarantee is a commitment by the lessee (or a third party) to make good any shortfall between the expected residual value of the asset and its actual value at the end of the lease. Amounts expected to be payable under a residual value guarantee are included in the lease payments used to measure the lease liability.
Why it matters
Residual value guarantees increase the lease liability. They are more common in vehicle and equipment leases than in property leases.
In AuditLease
AuditLease supports residual value guarantees as an optional input in the lease payment schedule.
Related terms
Put this into practice with AuditLease
AuditLease handles IFRS 16 and FRS 102 lease calculations, statutory note generation, journal entries, and audit evidence, so your team spends less time on spreadsheets and more time on judgements.
This definition is for general information only and is not accounting or legal advice. Definitions are based on IFRS 16, FRS 102, and associated guidance published by the IFRS Foundation and the Financial Reporting Council. Users should refer to the applicable accounting standards and their professional advisers for judgement-specific matters.