What is Book Value vs Fair Value?
In accounting và finance, it is important to lớn understvà the differences between book value vs fair value. Both concepts are used in the valuation of an asphối, but theyrefer to 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 hàng sẽ 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 asphối 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 lớn physical damage, changes in existing laws creating costs.
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On the other hand, fair value is referred to lớn as an estimate of the potential value of an asmix. In other words, it is the intrinsic value of an asset.
What is Book Value?
Book value (also known as carrying value or net asmix valueNet Asset ValueNet asphối 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 lớn mutual funds & is used to lớn determine the value of the assets held. According to lớn the SEC, mutual funds & Unit Investment Trusts (UITs) are required khổng lồ 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 asset minus any depreciation, amortization, or impairment costs applicable khổng lồ the asphối. The concept of book value arises from the practice of recording the assets on the balance sheet at its historical cost.
cảnh báo 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 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 và unbiased estimate of the intrinsic value of an asphối. Essentially, the fair value of an asset is based on several factors such as utility, related costs, and supply & dem& considerations. Another comtháng definition of fair value is the price that would be obtained for the sale of an asphối or paid to transfer a liability in a transaction between the market participants at the measurement date.
chú ý that in accounting, the concept of fair value is not applied to lớn 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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