Book value is an asset's original cost minus accumulated depreciation, the value it carries on the balance sheet.
Book value is what an asset is worth on paper: its original cost minus all the depreciation charged against it so far. It is the figure the asset “carries” on the balance sheet - which is why accountants also call it carrying value - and it falls a little further every accounting period until it reaches zero or the salvage value, whichever floor the depreciation method uses.
The formula
Book value = purchase cost - accumulated depreciation.
Accumulated depreciation is the running total of every depreciation charge to date, not just this year’s. For intangible assets such as software licences the same calculation uses amortisation instead of depreciation, but the logic is identical: original cost, minus everything written off so far.
A worked example
A workshop machine is bought for €5,000 and depreciated straight-line over five years with no salvage value - €1,000 a year.
- End of year 1: 5,000 - 1,000 = €4,000
- End of year 2: 5,000 - 2,000 = €3,000
- End of year 3: 5,000 - 3,000 = €2,000
- End of year 5: 5,000 - 5,000 = €0
The machine may still run perfectly at the end of year five. Book value says nothing about whether equipment works - only how much of its cost remains unexpensed.
Book value vs market value
Book value comes from a schedule; market value comes from buyers. The two drift apart in both directions. Consumer tech tends to fall below book value fast - a fleet of headsets or docking stations has little resale market at any age - while scarce machinery or vehicles in a hot market can sell above book. The gap is settled at disposal: sell above book value and the difference is a gain, sell below and it is a loss. Persistent large gaps are a sign the useful-life or salvage assumptions need revisiting, which is ordinary asset valuation hygiene.
Net book value and the company-level meaning
For a single asset, net book value (NBV) is the same number - “net” just stresses that depreciation has been deducted from gross cost. The term “book value” also gets used at company level, where it means total assets minus total liabilities, the accounting value of the whole business. Same family of idea, different object: one is a line on the fixed-asset register, the other a summary of the entire balance sheet.
Why book value matters in practice
Book value drives real decisions: whether a repair is worth making (a €400 repair on a €150 book-value printer is a conversation, not a reflex), what a department is charged when equipment transfers, what the insurance schedule should reflect, and what gain or loss to expect from a disposal or trade-in. It is also where capital spending becomes visible over time - every purchase capitalised as CapEx enters the books at cost and then declines along its schedule, so the register of book values is effectively a map of where past capital budgets went. In AMPthilly, purchase price, date and expected useful life are stored on each asset record, with valuation and depreciation tracking on the Pro plan and CSV export so finance can reconcile book values against the ledger. The habit that keeps the number meaningful is simple: record disposals promptly, and keep fully depreciated kit on the register for as long as it is actually in service.
Related terms
- CapEx - the capitalised spending that creates book value in the first place
- OpEx - costs expensed immediately, which never appear as book value
- Total Cost of Ownership - the lifetime cost view that book value feeds into
- Asset Valuation - keeping the assumptions behind the number defensible
- Amortisation - the equivalent write-down for intangible assets