Net book value is an asset's cost minus accumulated depreciation and impairment, giving its current carrying value in the accounts.
Net book value (NBV) is what an asset is currently worth in the accounts: its original cost minus all the depreciation charged so far, minus any impairment. It is the carrying value - the number the asset contributes to the balance sheet today - and it falls a step at a time as each period’s depreciation is charged, following the asset’s depreciation schedule down towards zero or its salvage value.
The formula
Net book value = original cost - accumulated depreciation - impairment
Original cost means the full capitalized amount, including delivery and installation, not just the invoice line for the item. Accumulated depreciation is the running total of every depreciation charge to date - not just this year’s. Impairment is the exceptional write-down taken when an asset’s value collapses faster than the schedule expected, such as machinery made redundant by a process change.
A worked example
A company buys a server for €10,000 and depreciates it over five years using straight-line depreciation with no salvage value - €2,000 a year.
- End of year 1: accumulated depreciation €2,000, NBV €8,000
- End of year 3: accumulated depreciation €6,000, NBV €4,000
- End of year 5: accumulated depreciation €10,000, NBV €0
The server may keep running long after year five; it just no longer carries value on the books.
NBV vs market value
NBV is mechanical: it falls exactly as the depreciation schedule says, whether or not the real world agrees. Market value is what a buyer would pay, and the two diverge constantly. Used servers and docking stations typically fetch less than their NBV in the early years because second-hand IT prices fall off a cliff; vehicles in a tight used market can fetch more. The gap only becomes an accounting event at the point of sale, when proceeds are compared against NBV to produce a gain or loss on disposal.
NBV vs gross book value
Gross book value is the original capitalized cost on its own, before any depreciation is subtracted. The pair tell you different things: gross book value says what the asset base cost to build; NBV says what is left of it. A register full of assets whose NBV sits near zero is itself a signal - the equipment fleet is ageing and a replacement wave is coming, even if everything still works today.
NBV in practice
NBV earns its keep in three places: the balance sheet total for fixed assets, the gain-or-loss calculation when something is sold or scrapped, and ageing analysis for replacement planning. None of those work if depreciation is tracked in a spreadsheet that has drifted away from the physical equipment list - the classic failure of fixed asset accounting is a ledger that values assets nobody can find. AMPthilly keeps purchase price and date, valuation and depreciation context, and replacement value on the same asset record that tracks the item’s owner, location and history, so the book value and the physical asset stay attached to each other. One insurance note: NBV is not the figure to insure against, because replacing a written-down asset still costs the full price of a new one.
Related terms
- Depreciation - the charge that erodes NBV each period
- Straight-Line Depreciation - the simplest method, producing an evenly falling NBV
- Depreciation Schedule - the year-by-year path NBV follows
- Fixed Asset Accounting - the discipline NBV reporting belongs to
- Asset Disposal - where NBV meets sale proceeds to produce a gain or loss