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Book value

Relates to the value of individual assets owned by a business, or the total value of the business as presented on the business’s balance sheet. It can also refer to the initial outlay of an investment. In terms of individual asset items the book value of an asset is calculated by deducting the accumulated depreciation of the asset from the cost (original purchase price) of the asset. See depreciation. In terms of the business as a whole, the book value of the business is calculated by deducting the value of all a business’s liabilities from the total assets of the business, excluding any intangible assets such as patents and goodwill. It also represents the owners / shareholders equity in the business in terms of subscription to a share issue and dividend sacrificed when profits are retained for reinvestment. It is not the same as the market value of the business as it excludes the intangible assets like goodwill, skills of the workforce, and intellectual property owned by the business. See market value. If a business is sold as a going concern it should be worth more than the book value revealed in the balance sheet.

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