What is Book Value vs Fair Value?

In accounting & finance, it is important lớn underst& the differences between book value vs fair value. Both concepts are used in the valuation of an asphối, but theyrefer lớn different aspects of an asset’s value. In this article, we will discuss book value vs fair value in detail and indicate their key distinctions.Quý Khách đã xem: Carrying value là gì

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Book value indicates an asset’s value that is recognized on the balance sheet. Essentially, book value is the original cost of an asmix minus any depreciationDepreciation ExpenseWhen a long-term asset is purchased, it should be capitalized instead of being expensed in the accounting period it is purchased in. It is, amortization, or impairmentImpairmentThe impairment of a fixed asphối can be described as an abrupt decrease in fair value due to physical damage, changes in existing laws creating costs.

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On the other h&, fair value is referred lớn as an estimate of the potential value of an asmix. In other words, it is the intrinsic value of an asmix.

What is Book Value?

Book value (also known as carrying value or net asphối valueNet Asphối ValueNet asmix value (NAV) is defined as the value of a fund’s assets minus the value of its liabilities. The term “net asset value” is commonly used in relation to lớn mutual funds và is used lớn determine the value of the assets held. According to the SEC, mutual funds và Unit Investment Trusts (UITs) are required to lớn calculate their NAV) is the value of an asmix that is recognized on the balance sheet. It is determined as the cost paid for acquiring an asphối minus any depreciation, amortization, or impairment costs applicable to the asset. The concept of book value arises from the practice of recording the assets on the balance sheet at its historical cost.

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chú ý that the book value of assets indicates the recorded value that shareholders own in case of the company’s liquidation. In addition, the book value is commonly used to lớn evaluate whether an asphối is over- or underpriced by comparing the difference between the asset’s book và market values.

What is Fair Value?

Fair value is a reasonable and unbiased estimate of the intrinsic value of an asmix. Essentially, the fair value of an asmix is based on several factors such as utility, related costs, & supply and demvà considerations. Another comtháng definition of fair value is the price that would be obtained for the sale of an asmix or paid to transfer a liability in a transaction between the market participants at the measurement date.

Note that in accounting, the concept of fair value is not applied khổng lồ all assets. Fair value is usually estimated for current assets that are held for resale such as marketable securities. Accounting using fair values is frequently exposed to lớn potential accounting fraud due khổng lồ the fact that companies can manipulate the fair value calculations.

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