Book value is also known as carrying value. It means the value of an asset according to the number that is on the balance sheet account balance. To get the book value for an asset, you would take the original cost of the asset and then subtract any depreciation, amortization or any impairment costs that were associated with the asset. Usually, to determine a company’s book value, you would have to take a look at the company’s total assets and then subtract the intangible assets and liabilities. However, there are other important variables you can also add to the calculation of book value. These variables would include goodwill, intangible assets or both. When do you do not include these variables the figure is called the “tangible book value”.
Book value can be reduced through monthly or annual depreciation, amortization and depletion over a period of time as assets are consumed. These are recorded in accounting books as non-cash expenses after a trial balance is calculated to make sure the cash transactions have been recorded correctly. For example, in buildings, depreciation is used to detail the value that has been declining over time. In addition, amortization is used to accurately assess the declining value of intangible assets. Also, to assess the use of and consumption of natural resources, depletion is used.
These three items can be recorded as expenses against a contra account. These accounts are used in accounting and bookkeeping to record assets and liability valuation changes over time.
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