Book Value And Fair Value

The difference between the book value and fair value is a potential profit or loss.

Book value and fair value. The fair value of an asset is. Book value usually represents the actual price that the owner paid for the asset. Relevance of period of time.

If implied value exceeds the aggregate fair values of identifiable net assets the residual amount will be positive a debit balance providing evidence of an unspecified intangible to be accounted for as goodwill. The p b ratio price to book ratio is a ratio of the price per share of a company in the market and the book value per share of a company. In this article we will discuss book value vs fair value in detail and indicate their key distinctions.

Book value of assets is of relevance in historical cost method of accounting. Conclusion the delivery van is a simplified example to illustrate the differences between nbv and fair. In simpler terms it is a ratio of the fair value of the company to its book value.

This difference between fair value and book value is used first to adjust the individual assets and liabilities to their fair values on the date of acquisition. The carrying value or book value is an asset value based on the company s balance sheet which takes the cost of the asset and subtracts its depreciation over time. Typically fair value is the current price for which an asset could be sold on the open market.

The p b ratio of a company can be higher than 1 lower than 1 or equal to 1. Essentially book value is the original cost of an asset minus any depreciation depreciation expense depreciation expense is used to reduce the value of plant property and equipment to match its use and wear and tear over time. Fair value of assets is of relevance in fair value method of accounting.

Appraisers consider the income cost and market approaches to value when performing a valuation. The two prices may or may not match depending on the type of asset. Book value considers past or historical costs which have been recorded in the books of accounts at the time of occurrence of the transaction.