Definition:
Net Book Value is the value of fixed assets after deducting the accumulated depreciation and accumulated impairment expenses from the original cost of fixed assets.
Accumulated depreciation expenses are the total depreciation expenses of assets from the beginning to the reporting date. In other words, the total annual depreciation expenses since the day that fixed assets were recognized in the entity financial statements.
Original costs of fixed assets are the capitalization of fixed assets, including acquisition costs and other related costs that bring the assets into workings conditions.
Netbook value is sometimes called the carrying value of assets, and this amount represents the value of assets at the reporting date in the entity’s balance sheet. Impairment should also be included in the netbook value calculation.
Formula:
Netbook value = Cost of Fixed Assets – Accumulated Depreciation
Explanation:
Fixed assets of an entity are normally stated at the net book value if there is no impairment or revaluation on the assets since the acquisition date or the date that those assets are capitalized.
The total cost of assets normally includes the acquisition cost and other necessary costs that those fixed assets into working conditions.
These costs also included the interest expenses if the entity was loaned to fund fixed assets. The total cost of assets will be reduced to net book value due to accumulated depreciation from those total costs.
Different depreciation methods, rates, and the residual value will be left netbook value differently at the same reporting date. This is because the depreciation charge to the assets is different due to accumulated depreciation.
Example1:
The entity-acquired machine costs 100,000 USD, and the scrap value of assets at the end of its useful life is 10,000 USD or 10% of book value.
The assets are expected to use for 5 years. And the company depreciation policy for this kind of asset is a 20% straight line. To calculate the asset’s net book value at the end of the fourth year.
Answer:
- Book Value of Assets: 100,000 USD
- Scrap Value of Assets: 10,000 USD
- Depreciation Rate 20% straight line
- Accumulated depreciation for 4 years = (100,000 – 10,000)*20%*4 = 72,000
Then
Net Book Value of Assets = 100,000 – 72,000 = USD 28,000
In year fifth, the accumulated depreciation will increase to 90,000 USD, and the Net Book Value will equal to 10,000 or equivalent to the scrap value of assets.
Example1:
Entity acquires machine costs 100,000 USD and the scrap value of assets at the end of its useful life 10,000 USD or 10% of book value.
The assets are expected to use for 5 years. And the company depreciation policy for this kind of asset is a 20% declining balance. To calculate the asset’s net book value at the end of the fourth year.
Answer:
- Book Value of Assets: 100,000 USD
- Scrap Value of Assets: 10,000 USD
- Depreciation Rate 20% s declining balance
- For depreciation, see the table below:
| Year | Book Value | Scrp | Depreciable Amount | Rate | Dep Exp | Acc Dep | NBV |
| 1 | 100,000 | 10,000 | 90,000 | 40% | 40,000 | 40,000 | 60,000 |
| 2 | 100,000 | 10,000 | 90,000 | 40% | 24,000 | 64,000 | 36,000 |
| 3 | 100,000 | 10,000 | 90,000 | 40% | 14,400 | 78,400 | 21,600 |
| 4 | 100,000 | 10,000 | 90,000 | 40% | 8,640 | 87,040 | 12,960 |
| 5 | 100,000 | 10,000 | 90,000 | 40% | 2,960 | 90,000 | 10,000 |
At the end of year fifth, the accumulating depreciation is balanced to depreciable amount do so the depreciation expenses.
At the end of the useful life, the depreciable amount should be equal to accumulated depreciation. Depreciation amount is the total cost of fixed assets (book value of assets less the expected residual value)
What is the depreciable value of fixed assets?
The depreciable value of fixed assets is the amount that the entity could charge to the assets by eliminating the expected residual value of assets from its book value.
Book value is the total cost of assets that an entity recording in its balance sheet—these costs include the acquisition cost plus costs that bring the assets to the present condition.
Net Book Value Vs Gross Book Value:
Gross book value or gross value is the total value of assets before deducting any depreciation or impairment. Getting from the example above, the gross book value or gross value of assets is USD100,000. The gross value is not changing. Only the net book value is changed.
In financial statements, we might not be able to see the gross book value of assets in the face of financial statements. But we could see them in the note.
For example, there should be not-to-fixed assets where you could see gross book value, depreciation of fixed assets during the year, and the total amount of accumulated depreciation. You could also see the net book value of fixed assets at the end of the year in the note.
