Book value

Definition

Book value is the net value of an asset as recorded on a company's balance sheet, calculated as the original cost minus accumulated depreciation and impairment. It is used to gauge the worth of an asset or company in financial accounting.

5 Must Know Facts For Your Next Test

1. Book value can be different from market value, which is the current price at which an asset can be sold.
2. Accumulated depreciation reduces the book value of tangible fixed assets over time.
3. For bonds, book value represents the face value adjusted by any unamortized premium or discount.
4. Impairment losses also reduce the book value when an asset's market value drops below its carrying amount.
5. The adjustment process often involves updating book values to reflect more accurate current values through depreciation or impairment.

Review Questions

• How does accumulated depreciation affect the book value of a long-term asset?
• What adjustments might be made to a bond's book value over its life cycle?
• In what ways can impairment influence an asset's book value?

Related terms

Market Value: The current price at which an asset or company can be bought or sold.

Accumulated Depreciation: The total depreciation expense that has been recorded against a fixed asset since it was acquired.

Impairment Loss: A reduction in the carrying amount of an asset when its recoverable amount falls below its book value.