Who is responsible for determining the residual value of an asset?

Who is responsible for determining the residual value of an asset?

• A. Company management
• B. External auditors
• C. Tax authorities
• D. Accounting policymakers

Answer: (A)

Company management is responsible for determining the residual value of an asset because they possess the most relevant information regarding the asset’s expected use, condition at the end of its useful life, and market conditions. This estimate is integral for calculating depreciation, as it affects the total depreciable base of the asset. Management typically assesses factors like the asset's expected wear and tear, technological advancements, and market demand to make a well-informed estimate. While external auditors might review management's calculations as part of their audit procedures, they do not determine the residual values themselves. Tax authorities set regulations and guidelines regarding depreciation but do not make asset-specific evaluations. Accounting policymakers may establish frameworks or guidelines for how residual values should be determined but, again, do not assess individual asset values directly. Thus, the responsibility rests primarily with company management due to their comprehensive understanding of the assets in question.

Company management is responsible for determining the residual value of an asset because they possess the most relevant information regarding the asset’s expected use, condition at the end of its useful life, and market conditions. This estimate is integral for calculating depreciation, as it affects the total depreciable base of the asset. Management typically assesses factors like the asset's expected wear and tear, technological advancements, and market demand to make a well-informed estimate.

While external auditors might review management's calculations as part of their audit procedures, they do not determine the residual values themselves. Tax authorities set regulations and guidelines regarding depreciation but do not make asset-specific evaluations. Accounting policymakers may establish frameworks or guidelines for how residual values should be determined but, again, do not assess individual asset values directly. Thus, the responsibility rests primarily with company management due to their comprehensive understanding of the assets in question.