Book value, also known as carrying value, is the net amount of a business's assets that are recorded on its balance sheet.
It is calculated by taking an asset's initial cost and subtracting its accumulated depreciation. This figure represents
the value of an asset as it appears on a company's financial statements, not necessarily its current market value.
For a single asset, the book value formula is straightforward:
Book Value = Initial Cost - Accumulated Depreciation
Understanding book value is crucial for several reasons:
Financial Reporting: It's a key component of a company's balance sheet, providing a standardized way to value assets.
Investment Analysis: Investors may compare a company's book value to its market value to identify potential undervalued or overvalued stocks. The price-to-book (P/B) ratio is a common metric used for this purpose.
Liquidation Value: While not directly the market value, book value can offer an indication of an asset's worth in a liquidation scenario, though market conditions can significantly alter this.
Loan Collateral: Lenders may consider the book value of assets when determining loan amounts.
Depreciation: This is an accounting method used to allocate the cost of a tangible asset over its useful life. Depreciation represents how much of an asset's value has been "used up" over time. Common methods include straight-line depreciation, declining balance, and units of production. Accumulated depreciation is the total depreciation recognized for an asset up to a specific point in time.
Important Note: Book value can differ significantly from market value. An asset might be worth more or less on the open market than its recorded book value due to factors like market demand, obsolescence, or appreciation.
function calculateBookValue() {
var initialCostInput = document.getElementById("initialCost");
var accumulatedDepreciationInput = document.getElementById("accumulatedDepreciation");
var resultDiv = document.getElementById("result");
var initialCost = parseFloat(initialCostInput.value);
var accumulatedDepreciation = parseFloat(accumulatedDepreciationInput.value);
if (isNaN(initialCost) || isNaN(accumulatedDepreciation)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
resultDiv.style.display = "block";
return;
}
if (accumulatedDepreciation < 0) {
resultDiv.innerHTML = "Accumulated Depreciation cannot be negative.";
resultDiv.style.backgroundColor = "#dc3545";
resultDiv.style.display = "block";
return;
}
if (initialCost < 0) {
resultDiv.innerHTML = "Initial Cost cannot be negative.";
resultDiv.style.backgroundColor = "#dc3545";
resultDiv.style.display = "block";
return;
}
var bookValue = initialCost – accumulatedDepreciation;
if (bookValue < 0) {
resultDiv.innerHTML = "Book Value: " + bookValue.toFixed(2) + " (Asset is fully depreciated or has a negative book value)";
resultDiv.style.backgroundColor = "#ffc107"; // Warning yellow
} else {
resultDiv.innerHTML = "Book Value: " + bookValue.toFixed(2);
resultDiv.style.backgroundColor = "var(–success-green)"; // Success green
}
resultDiv.style.display = "block";
}