What is an unguaranteed residual value?

An unguaranteed residual value refers to the portion of the asset’s expected value at the end of a lease term that is not guaranteed by the lessee or any other party. This means that the lessee has not committed to ensuring a specific value for the asset once the lease period concludes, which can influence how the asset is treated in financial reporting and lessee accounting.

In leasing agreements, parties may negotiate residual values, and the guaranteed portion is supported by commitments that the lessee or a third party will cover. If the actual value at termination is less than the guaranteed amount, the guarantor covers the difference. However, for unguaranteed residual values, there is no such assurance, impacting both the risk assessment in the lease and the lessee's balance sheet treatment. Understanding this concept is important, as it can materially affect the accounting for the asset and liabilities associated with the lease.

Considering the other choices, the assured portion of an asset and guaranteed values focus on what is specific and secured, while a stated value in the lease contract may not necessarily distinguish between guaranteed and unguaranteed. Therefore, the definition that captures the essence of unguaranteed residual value is that it is a value not assured by the les