Copyright

Book Value: Definition, Formula & Examples

Instructor: Darlisha Oliver
An item's book value is the most accurate depiction of what it is currently worth. Most items lose value over time and are not worth their original value after they have been used. Let's take a look at book value and how it is calculated.

Book Value

Michael loves to buy new cars, and almost never drives the same car for more than two years. Currently, he has a 2014 sports car and wants to trade it in for a 2016 sports car. Michael paid $60,000 for his 2014 sports car when he originally purchased it. Upon arriving at the car dealership, Michael finds out that his car is only worth $40,000. This $20,000 decline in value is referred to as accumulated depreciation. The book value of an item is equal to its cost minus accumulated depreciation.

Depreciation and Accumulated Depreciation

Depreciation is defined as the periodic decline in value an item experiences after it has been put to use. Depreciation is normally calculated on a yearly basis. However, some companies calculate depreciation every month. The period of time used to calculate depreciation depends on how often the company prepares its financial statements. For example, if a company prepares its balance sheet and other financial statements at the end of every month, depreciation is calculated on a monthly basis. Accumulated depreciation is the total decline in value over the entire time the item has been used. In Michael's case, the accumulated depreciation on his 2014 sports car is $20,000.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support