Book Value And Fair Value Difference

In this article we will discuss book value vs fair value in detail and indicate their key distinctions.

Book value and fair value difference. Book value of assets is of relevance in historical cost method of accounting. Typically fair value is the current price for which an asset could be sold on the open market. Essentially book value is the original cost of an asset minus any depreciation depreciation expense depreciation expense is used to reduce the value of plant property and equipment to match its use and wear and tear over time.

The carrying value or book value is an asset value based on the company s balance sheet which takes the cost of the asset and subtracts its depreciation over time. Book value usually represents the actual price that the owner paid for the asset. Relevance of period of time.

Book value considers past or historical costs which have been recorded in the books of accounts at the time of occurrence of the transaction. The fair value of an asset is. Book value indicates an asset s value that is recognized on the balance sheet.