What Is Difference Between Book Value And Market Value

Difference between book value and market value.In all companies there are goods that must have a book value, but also have a market value, and both can be very different from each other. What determines the price of each one? The answer for one is simple, but for another it is not so.For accounting purposes, real figures must be presented that allow us to make correct decisions, and it is for that same reason that book balances must be considered, or also known as book value.

What is difference between book value and market value

What is book value

The Book Value is the value of an asset once its depreciation or impairment has been subtracted. In some cases, the depreciation that the asset has accumulated up to that point is also subtracted.

To better illustrate, suppose we have asset X worth $ 100,000.00 with accumulated depreciation of $ 30,000.00.

Asset X = $ 100,000.00

Accumulated depreciation = $ 30,000.00

Book Value = $ 70,000.00

The $ 70,000.00 is the book value, and therefore is the book value of that asset. As time goes by and depreciation increases, the book value will change.

The book value is the book value.

What is market value

The market value, on the other hand, is not subject to the depreciation or amortization of the asset, but to the price set by the market and its behavior. Come on, it is determined by the law of supply and demand and does not necessarily obey its depreciation or its cost of production.

Using the same previous case as an example, we can say that:

Asset X = $ 100,000.00

Accumulated Depreciation = $ 30,000.00

Book Value = $ 70,000.00

But this good can result in the market having a cost of up to $ 500,000.00

Market value = $ 500,000.00

The book value or book value is the “gross” amount of an asset or a liability that is recorded in a balance sheet once it is deducted, in the case of assets its amortization is accumulated and for any impairment that has been registered. In other words, it is the value for which it is recorded in a ledger . This serves to assign a monetary cost to each item that is part of the accounts for the year.

In the business case, it is the value of an asset in the financial statements of the company , it is still the cost of the asset minus depreciation. Accountants generally use book value to determine money expenses in the business.

These monetary expenses will be anything, but it is expected that over many accounting periods, you will create an income, as this is a tax deduction for the business . This helps decision-making for the top of the business structure .

We can see then that they are not the same concepts, while the replacement value is responsible for calculating the cost that a company will have to assume, when replacing one good and replacing it with another, the book value or book value, refers to the one that It is used to calculate expenses of any kind, in turn it is a valuation method that companies have . We hope this article on the differences between replacement value and book value has been helpful to you .

by Abdullah Sam
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