Book Value Explained

The actual value of an asset that is shown in the balance sheet is called as the book value of that asset. In order to calculate the book value of the asset the total cost of the asset is determined and then depreciation or amortization is subtracted from this cost of the asset. In some simpler words the book value of an asset can be defined as the net asset value of the business minus the accumulated depreciation on that asset. The net asset value of the asset can be calculated by subtracting total value of intangible assets from the tangible assets. Another name given to the book value is the Net Book Value or NPV.

Book Value can also be termed as the accounting value of the asset and is usually calculated to find out the effect of depreciation over an asset. The book value of an asset can be calculated by following a few simple steps. First of all identify the historical cost of the asset listed in the cost section of the general ledger. In order to calculate the original cost of the asset find out the account balance of that particular asset in general ledger. In the next step you need to calculate the accumulated depreciation on that asset. The depreciation can be calculated by straight line method in which the value or cost of asset is depreciated over the useful time span of an asset’s life. In the last step the book value is calculated by subtracting the depreciated value from the original cost of the asset. One thing must be kept in mind while calculating the book value is that it does not represent the market value of that asset.

Other Related Accounting Articles:

• Written Down Value
• Depreciation: Straight Line Biases
• Book Value
• What is Depreciation?
• Appraisal Capital Explained
• Accounting for Capital Lease
• Net Investment
• Revaluation Method of Depreciation
• Definition, Explanation and Characteristics of “Depreciation” or “Accounting Depreciation
• Return on Capital Employed