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Book value is a theoretical value of a asset or liability based on its recorded book entry value. It is the cost of the asset or liability at the time it was acquired, minus any depreciation or amortization that has been taken.
Formula:
Book value = Cost - Depreciation or Amortization
Example:
A company purchased a machine for $10,000 in 2020. The machine has a depreciation rate of 10% per year. After three years, the book value of the machine would be:
Book value = $10,000 - (10% x 3) = $9,000
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