What is book value?

Definition of Book Value

In accounting, book value refers to the amounts contained in the company's general ledger accounts (or books). It is important to realize that the book value is not the same as the fair market value because of the accountants' historical cost principle and matching principle.

Book value of an asset is: the asset's cost minus the asset's accumulated depreciation.

Book value of the liability Bonds Payable is the combination of the following:

  • Maturity or par value of the bonds reported as a credit balance in Bonds Payable
  • Unamortized discount reported as a debit balance in Discount on Bonds Payable
  • Unamortized issue costs reported as a debit balance in Bond Issue Costs
  • Unamortized premium reported as a credit balance in Premium on Bonds Payable

Book value of a corporation is: the total amount of stockholders' equity appearing on a corporation's balance sheet.

Examples of Book Value Calculations

If a company's computer system had a cost of $300,000 and it has accumulated depreciation of $80,000, the computer system has a book value of $220,000.

If a company has issued bonds with a maturity value of $40,000,000 and its current balance sheet reports Unamortized Bond Discount of $800,000 and Unamortized Bond Issue Costs of $200,000, the book value of the bonds is $39,000,000.

If a corporation's balance sheet reports stockholders' equity of $245,000, the corporation's book value is that amount.

Reminder Concerning Book Value

Book value does not indicate the current market value. In our examples:

  • The current market value of the computer system may be far less than the book value of $220,000
  • The current market value of the corporation may be far more than its book value of $245,000

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