It is the amount that both a lessor and lessee consider a final lease payment, at the end of the lease term. For a lessee, it is a portion of the residual value of a leased asset that is guaranteed by the lessee or by a party related to the lessee. The guarantee amount is the maximum amount that may become payable: the amount which the lessee is bound to settle on account of the entire lease. For a lessor, guaranteed residual value is the part of the residual value that is covered by a guarantee extended by the lessee or a third party unrelated to the lessor. The third party is assumed to be financially solvent for settlement of any obligations that may arise under the said guarantee. In that sense, the guaranteed residual value is an additional payment that by a lessee is required to make when a lease terminates. Hence, it is a financial commitment made by the lessee, and is taken into consideration in the calculation of the minimum lease payment at inception.
The lessee is required to depreciate the asset down to its guaranteed residual value.
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