What Is Book Value?
Carrying amount, how it changes, and how it is used to calculate gains and losses on disposal.
Home › Accounting Glossary › Book Value
| Also called | Carrying amount, net book value |
|---|---|
| Used to find | Profit or loss on disposal |
| Topic | Financial accounting · Non-current assets |
Book value in plain English
Book value tells you how much of an asset’s cost has not yet been charged to expense through depreciation. It falls each year. It reflects accounting history, not what the asset could sell for today.
Worked example
Equipment cost 12,000 and has accumulated depreciation of 4,000.
Book value = 12,000 − 4,000 = 8,000.
Disposal: if the equipment is sold for 9,000, profit on disposal = proceeds − book value = 9,000 − 8,000 = 1,000 gain. If it were sold for 7,000, there would be a 1,000 loss.
- Assuming book value equals market value. They are usually different.
- Calculating the gain or loss on disposal from cost instead of book value.
Frequently asked questions
What is the difference between book value and market value?
Book value is cost less accumulated depreciation. Market value is what the asset could be sold for now.
How do you calculate the profit or loss on disposal?
Proceeds minus book value. A positive result is a gain and a negative result is a loss.
Can book value fall below the residual value?
No. Depreciation stops when the book value reaches the residual value.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.