Book Value Historical Cost

It is important to realize that the book value is not the same as the fair market value because of the accountants historical cost principle and matching principle.

Book value historical cost. Equivalent to market value for firms with fixed assets. The term book value derives from the accounting practice of. Key takeaway tangible operating assets with lives of over a year are initially reported at historical cost.

The concept of book value arises from the practice of recording the assets on the balance sheet at its historical cost. A historical cost is a measure of value used in accounting in which the value of an asset on the balance sheet is recorded at its original cost when acquired by the company. The amount a willing buyer will pay for an asset.

Traditionally a company s book value is its total assets minus intangible assets and liabilities. It distinguishes an asset s cost from its replacement cost current cost or inflation adjusted cost. For assets the value is based on the original cost of the asset less any depreciation amortization or impairment costs made against the asset.

Book value is the accounting value of the company s assets less all claims senior to common equity such as the company s liabilities. However in practice depending on the source of the calculation book value may variably include goodwill intangible assets or both. The asset s cost minus the asset s accumulated depreciation.

Book value is one of the most important concepts in accounting. Basically the historical cost principle says that you record an asset at its historical cost when it is purchased. Historical cost is a replacement for the term cost.

Book value of an asset is. The value inherent in. After two years net book value is 490 000 600 000 cost less 55 000 and 55 000 or accumulated depreciation of 110 000.