{"id":27943,"date":"2025-06-20T08:02:57","date_gmt":"2025-06-20T08:02:57","guid":{"rendered":"https:\/\/gaviki.com\/blog\/?p=27943"},"modified":"2025-06-20T08:03:01","modified_gmt":"2025-06-20T08:03:01","slug":"when-a-lease-has-an-unguaranteed-residual-value-the-lessor-reduces-sales-revenue-and-cost-of-goods-sold-by-the-present-value-of-the-unguaranteed-residual-value","status":"publish","type":"post","link":"https:\/\/gaviki.com\/blog\/when-a-lease-has-an-unguaranteed-residual-value-the-lessor-reduces-sales-revenue-and-cost-of-goods-sold-by-the-present-value-of-the-unguaranteed-residual-value\/","title":{"rendered":"When a lease has an unguaranteed residual value, the lessor reduces sales revenue and cost of goods sold by the present value of the unguaranteed residual value"},"content":{"rendered":"\n<p>When a lease has an unguaranteed residual value, the lessor reduces sales revenue and cost of goods sold by the present value of the unguaranteed residual value. <\/p>\n\n\n\n<p> True <\/p>\n\n\n\n<p> False<\/p>\n\n\n\n<p><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>The correct answer and explanation is:<\/strong><\/mark><\/p>\n\n\n\n<p><strong>Correct Answer: \u2705 True<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p>In <strong>lease accounting<\/strong>, especially for <strong>sales-type leases<\/strong> under <strong>IFRS 16<\/strong> or <strong>ASC 842<\/strong> (depending on whether IFRS or US GAAP is being used), the treatment of <strong>residual values<\/strong> is important in determining how the <strong>lessor<\/strong> accounts for revenue and cost of goods sold (COGS).<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">\u2705 What is an Unguaranteed Residual Value?<\/h3>\n\n\n\n<p>An <strong>unguaranteed residual value<\/strong> is the portion of the expected value of the leased asset at the end of the lease term that is <strong>not guaranteed<\/strong> by the lessee or any third party. In simple terms, it\u2019s the amount the lessor <em>hopes<\/em> to recover by selling or re-leasing the asset, but with <strong>no assurance<\/strong> it will be received.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">\ud83d\udca1 Sales-Type Lease and Revenue Recognition:<\/h3>\n\n\n\n<p>In a <strong>sales-type lease<\/strong>, the lessor effectively sells the asset to the lessee and recognizes:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Sales revenue<\/strong><\/li>\n\n\n\n<li><strong>Cost of goods sold (COGS)<\/strong><\/li>\n\n\n\n<li><strong>A lease receivable<\/strong><\/li>\n<\/ul>\n\n\n\n<p>To reflect the fact that part of the asset&#8217;s value remains with the lessor (in the form of an unguaranteed residual value), the <strong>present value of the unguaranteed residual<\/strong> is <strong>excluded<\/strong> from both the:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Sales revenue<\/strong>, and<\/li>\n\n\n\n<li><strong>COGS<\/strong><\/li>\n<\/ul>\n\n\n\n<p>This adjustment ensures that the <strong>sales revenue and cost of goods sold only reflect the portion of the asset that is being &#8220;sold&#8221; to the lessee<\/strong> through lease payments.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">\ud83d\udcca Example:<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Fair value of asset = $100,000<\/li>\n\n\n\n<li>Present value of lease payments = $80,000<\/li>\n\n\n\n<li>Present value of unguaranteed residual = $20,000<\/li>\n<\/ul>\n\n\n\n<p>Then:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Sales Revenue<\/strong> = $80,000<\/li>\n\n\n\n<li><strong>COGS<\/strong> = Carrying value of asset \u00d7 (80,000 \/ 100,000)<\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">\u2705 Conclusion:<\/h3>\n\n\n\n<p>Since the lessor does not &#8220;sell&#8221; the unguaranteed residual portion, it makes accounting sense to exclude its present value from both sales revenue and COGS. Therefore, the statement is <strong>True<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>When a lease has an unguaranteed residual value, the lessor reduces sales revenue and cost of goods sold by the present value of the unguaranteed residual value. True False The correct answer and explanation is: Correct Answer: \u2705 True Explanation: In lease accounting, especially for sales-type leases under IFRS 16 or ASC 842 (depending on [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-27943","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/27943","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=27943"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/27943\/revisions"}],"predecessor-version":[{"id":27944,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/27943\/revisions\/27944"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=27943"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=27943"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=27943"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}