Net Book Value
It refers to the value at which the books of the company report an asset. The net book value calculator calculates the cost of assets less total or accumulated depreciation/amortization on such assets. We use the term depreciation in the case of tangible assets while amortization is the term we use for intangible assets. For example, patents, goodwill, Copywrite, etc.
The concept of the net book value is important because of the existence of differences in the amount recorded in the books of the company and its value prevailing in the market. The market value can either be higher or lower than the book value. So, in order to determine the minimum price at which one can sell the asset, book value is crucial. Also, it is a base for various financial ratios.
The formula for calculating the net book value of an asset is to deduct the amount of accumulated depreciation from the cost of the asset. To present it into an equation:
Net Book Value = Original Cost of the Asset – Accumulated Depreciation (till the date of calculation)
How to Calculate using Calculator?
Enter the following details into the net book value calculator for quick calculation.
We need to enter the original cost of the asset. The cost at which the company acquires the asset initially. This includes all costs from the date of acquisition till the asset is put to use. For example, installation charges, freight charges, etc. And, any discount or grant received shall also need to be deducted from such cost.
Accumulated depreciation refers to the total depreciation charged on the asset since putting it to use till the date of calculation. This simply means the depreciated value of the asset till the date of calculation. If the company charges depreciation as per the straight-line method (SLM), then multiply the amount of depreciation for a year by the number of years asset is in use. And, if the company is using the written down value (WDV) method, then simply add the depreciation of the years elapsed since the asset has been put to use.
Assume that the cost of machinery on its date of purchase was $27,000 (including all the charges). Its salvage value, after a useful life of 7 years, is $2,500. And, the company uses the straight-line method to depreciate it. What will be the net book value of the asset after four years of purchase?
Depreciation (as per SLM) = (27,000 – 2,500)/7 = $3,500
Accumulated depreciation for 4 years = 3,500 * 4 = $14,000
Net Book Value = 27,000 – 14,000 = $13,000
Suppose that the market value of this asset is higher than its book value. In this case, the books of the company will depict a lower overall net book value.