The residual value is used in calculating depreciation for both SLM and WDV methods. According to INDAS, generally when an asset is held for sale, it is not depreciated. Then, it is sold at lower of carrying amount or NRV in all standards like IndAS, AS 10, IFRS 5. The resale value need not be subtracting depreciation. Like mentioned earlier, the asset is sold at cost or NRV, which ever is lower and profit or loss is recognised. The only information regarding HP available in AS 10 is ‘15.1 In the case of fixed assets acquired on hire purchase terms, although legal ownership does not vest in the enterprise, such assets are recorded at their cash value, which, if not readily available, is calculated by assuming an appropriate rate of interest. They are shown in the balance sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof.’
To be logical, one is not responsible for scrap value when Asset is transferred to another party. Then, HP assets are recognises at cash value on balance sheet. I didn’t knew it was recognised based on the Pv of future instalments as well. So my investment appraisal is wrong above. Here is a very good material which will sort out your problem. https://www.mastermindsindia.com/newfiles/3.%20Hire%20Purchase%20and%20Instalment%20sale%20transactions_2e%20Image.pdf
If your saying resale value of the asset and scrap value to be the same, then the value is based on judgement by auditors.
To conclude, if your putting the asset to sale, you can’t because you don’t have the ownership rights. If you took the right to sell it to someone, your obligated to sell it at a price that will cover the whole pending instalments.
Asset value is 100 for ten years
Depreciation is 10₹
Interest is 10%
then principle is 100 and Interest is 100. After five years, Asset is worth 50, you paid 100₹ already as instalments.
If you put it on sale, NBV is 50, NRV is usually lower than cost for cars assuming 50-selling costs 10₹, AND IF YOU SELL IT for 40₹, you will have to pay the extra 10₹ to the vendor. But depreciation need not be included in the calculation because, as per IndAS depreciation is stopped. You can check out AS non current asset disposal standard if you have the ownership to sell.
The main problem is, I could not find any rules defined for resale. Txs.
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