Book Value Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Book Value, written in plain English, along with examples of how it is used.
What is Book Value?
(n) Book Value is the recorded value of a business or assets as appearing in the books of accounts maintained on the basis of commercial customs and accounting standards at a particular time. Book value represent the value in which the transaction has taken place and adjusted as per the accounting norms and will not represent the real or market value of the business or asset.
History and Meaning of Book Value
Book value is an accounting term that has been in use for many decades to represent the recorded value in a company's financial books. The value is a result of the original transaction price and subsequent accounting adjustments as per the accounting standards. The book value can indicate the company's financial health, but it is important to note that it doesn't represent real or market value.
Examples of Book Value
Some examples of book value include:
A company buys a building for $1 million and records it in its financial books. After a few years of depreciation, the recorded book value might decrease to $800,000.
A company has $10 million worth of inventory recorded in its financial books. However, due to market conditions, the inventory would only fetch $7 million if it were sold.
A company purchased a patent for $500,000 and recorded it in its financial books. Later on, the company found out the patent's real value is less than $100,000, recording the book value of $100,000 accordingly.
Legal Terms Similar to Book Value
Related terms that have a similar meaning and usage as book value include:
Fair Market Value - the price an asset would have in the open market under normal conditions.
Net Book Value - the value of an asset as reported in the accounts after accumulated depreciation and impairment have been subtracted.
Liquidation Value - the value of the assets that could be sold in an orderly fashion to pay off debt and obligations.