Book value is a very important aspect of finance and accounting. The book values contribute a major hand in developing a proper balance sheet. Book value is sort of some asset’s value which corresponds to that value written in the balance sheet. The value comprises the real or original price of the asset neglecting the depreciation or any impairment made against the asset. The book value of an asset is equal to the asset’s cost less accumulated depreciation.
Formulating Book Value
The main formula to calculate Book is very easy to understand. The book value of an asset is equal to the following:
Book value = total assets – intangible assets – liabilities.
Book value can be deduced by deducting intangible assets or non-physical assets and liabilities like debt, or something that doesn’t provide profit instead makes more burden on the company from the entire assets of the company.
Going In-Depth on Calculating Book Value
Book value is generally calculated when the assets are able to be depreciated like tangible assets like property, car or furniture, etc.
The book value can only be calculated if all three numbers of total assets, intangible assets and liabilities are available on the balance sheet. And they must lie in the category of depreciated assets. Only then the Book value will deduce.
During the initiation of purchase, the accumulated depreciation doesn’t activate which means the cost of the good is its book value. But as time passes, the cost will remain the same but the accumulated depreciation will climb up while the book value will go downwards. So accumulated depreciation and book value are indirectly proportional to each other.
Businesses that can have a Book value
Those businesses that deal with intangible assets like property, furniture, etc most probably could have book value. That’s because the tangible asset like property doesn’t decrease its value so often with respect to time, so they come under the umbrella of depreciated. So at the start, the businesses have the book value of the actual item.
Do Personal Assets Have a Book Value?
Personal assets unrelates themselves to depreciation rate that means they would have a meaningless result. But still, we could calculate the book value of the personal assets of some vehicle. Book value is better with business assets, so we should limit it to business instead of involving it in the personal schema.
Is Book Value Important for Business Finances?
The book value is a very important and critical aspect of the business as we discussed earlier in this post. It depicts the overall review of the business. The book value plays an important for the valuation of the company. If the company is ready to be sold, then the book value shows the accurate position of where is standing. If the company has a good and proper made book value, then buyers wouldn’t have much hesitation in buying the company. Because it will have properly demonstrated analyses of the company.
Is Book Value critical for Business taxes?
The book value of assets for tax purposes is important mostly because of the depreciation of those assets. Depreciation is an expense, which is shown in the business profit and loss statement, and depreciation lowers profits and thus reduces business taxes.
