How is the book value of an asset calculated?

How is the book value of an asset calculated?

• A. Cost minus accumulated depreciation
• B. Current market value
• C. Replacement cost
• D. Salvage value

Answer: (A)

Book value shows the asset’s recorded value on the books and is calculated as the asset’s cost minus the accumulated depreciation to date. The cost is what was paid to acquire the asset, and accumulated depreciation is the total depreciation expense recorded over time. Subtracting these gives how much of the asset’s cost remains as net value on the balance sheet, which is what the company would report as book value. Current market value, replacement cost, and salvage value are related concepts but serve different purposes: market value is what the asset could currently fetch in the market, replacement cost is what it would cost to replace the asset with a similar one, and salvage value is an estimate of what the asset is worth at the end of its useful life (often used in calculating depreciation, not the ongoing book value).

Book value shows the asset’s recorded value on the books and is calculated as the asset’s cost minus the accumulated depreciation to date. The cost is what was paid to acquire the asset, and accumulated depreciation is the total depreciation expense recorded over time. Subtracting these gives how much of the asset’s cost remains as net value on the balance sheet, which is what the company would report as book value. Current market value, replacement cost, and salvage value are related concepts but serve different purposes: market value is what the asset could currently fetch in the market, replacement cost is what it would cost to replace the asset with a similar one, and salvage value is an estimate of what the asset is worth at the end of its useful life (often used in calculating depreciation, not the ongoing book value).