For lessors, why do they assume that the residual value will be realized at the end...
For lessors, why do they assume that the residual value will be realized at the end of the lease term whether guaranteed or not? who would make the payments for the residual value of the leased asset if the value isn't guaranteed?
Homework Answers
Residual value is assumed to be realized at the end of the lease term because it is the value of assets left after the expiry of the lease term. It is never realized before lease term because of uncertainty of the actual amount of realization.
If the residual value isn't guaranteed then the asset is sold in the market by lessor and value is recovered. Lessee will not make payments of unguaranteed residual value.
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