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Book Value of Assets
An asset is anything of value that is owned by a company or organization. The term "book value of assets" is an accounting concept. The book value of assets is defined as the original cost of an asset minus accumulated depreciation, or depletion or amortization.
The book value of any asset may have little in common with the asset's fair market value. Book value is the value of an asset on the company's balance sheet. In the case of non current assets including plant and equipment, the book value of assets equals the acquisition price of those assets minus accumulated depreciation.
- Fixed assets with the exception of land has a book value equal to acquisition price minus accumulated depreciation,
- Land is carried on the balance sheet at its purchase price,
- Inventory as well as certain other current assets are listed on the balance sheet at their Lower of Cost or Market [note that these assets are never written up to the higher of cost or market].
One final comment: Depreciation is a non-cash expense. Depreciation expenses reduces taxable income but does not reduce cash. This is what is meant by the term non-cash expense.
© 2011 by Michael C. Dennis. All Rights Reserved.