Book Value And Fair Value Difference
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.
Book value and fair value difference. In this article we will discuss book value vs fair value in detail and indicate their key distinctions. Typically fair value is the current price for which an asset could be sold on the open market. Fair value of assets is of relevance in fair value method of accounting.
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. Relevance of period of time. Book value of assets is of relevance in historical cost method of accounting.
The difference between the book value and fair value is a potential profit or loss. The two prices may or may not match depending on the type of asset. Book value indicates an asset s value that is recognized on the balance sheet.