A guaranteed residual value is an amount that the lessee guarantees to the lessor for the value of the leased asset at the end of the lease term.

If the asset’s fair value at the end of the lease is lower than the guaranteed residual value, the lessee must pay the difference to the lessor.

For the lessee, only the payment required when the guaranteed value exceeds the asset’s fair value is treated as a lease payment and included in the measurement of the lease liability.

For the lessor, the guaranteed residual value forms part of the lease receivable, because the lessor expects to recover that amount regardless of the asset’s final fair value.