Book value, also known as "net book value" or "carrying amount," is a financial term used to represent the value of an asset or a company's equity as recorded on its balance sheet.
For assets:
Book Value of an Asset = Original Cost of the Asset - Accumulated Depreciation (Amortization, or Impairment Charges)
In the context of assets, the book value reflects the historical cost of an asset, less any depreciation or amortization that has been applied to account for its reduction in value over time. This value may or may not accurately represent the current market value of the asset.
For equity (in the context of a company's balance sheet):
Book Value of Equity = Total Assets - Total Liabilities
In the context of a company's equity, the book value represents the residual interest in the company after deducting its liabilities from its assets. This gives a sense of what shareholders would theoretically receive if the company's assets were sold and its liabilities were paid off.
The book value does not necessarily reflect the true market value of an asset or a company. Market conditions, changes in asset value, and other factors can lead to differences between book value and market value.
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