Residual value
In one sentenceThe amount the business expects to obtain from selling an asset at the end of its useful life after deducting costs to sell; this part is not depreciated.
Simply put
If you will sell the truck after six years for a reasonable amount, there is no need to depreciate it to zero. The part you will recover is the residual value, and only the rest is depreciated.
It is an estimate that is reviewed periodically. If the estimate changes, depreciation is adjusted for future years, not past ones.
Worked example
A transport company bought a truck for 300,000 SAR and expects to sell it after 6 years for 60,000 SAR.
Depreciable amount: 300,000 − 60,000240,000 SAR
Useful life6 years
Annual depreciation: 240,000 ÷ 640,000 SAR
Don't confuse it with
Book valueBook value changes every year with depreciation, while residual value is an estimate for the end of the life only.