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 of annual depreciation expenses since the day that fixed assets were recognized in the entity financial statements.

Original costs of fixed assets are the capitalization amount of fixed assets including acquisition costs and other related costs that bring the assets into workings conditions.

Netbook value is sometimes called carrying value of assets and this amount represents the value of assets at the reporting date in the balance sheet of the entity. 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 capitalized.

The total cost of assets normally including the acquisition cost, and other necessary costs that those fixed assets into working conditions.

These costs also included the interest expenses if entity load to fund fixed assets. The total cost of assets will be reduced to net book value as the result of 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 do so accumulated depreciation.

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Example1:

Entity acquired 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% straight line. Calculate assets 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 scrap value of assets.

Example1:

Entity acquired 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. Calculate assets 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
  • Depreciation, see table below:
YearBook ValueScrpDepreciable AmountRateDep ExpAcc DepNBV
1 100,000 10,000 90,00040% 40,000 40,000 60,000
2 100,000 10,000 90,00040% 24,000 64,000 36,000
3 100,000 10,000 90,00040% 14,400 78,400 21,600
4 100,000 10,000 90,00040% 8,640 87,040 12,960
5 100,000 10,000 90,00040% 2,960 90,000 10,000

At the end of year fifth, the accumulating depreciation is balancing to depreciable amount do so the depreciation expenses.

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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 entity recording in its balance sheet. These costs including the acquisition cost plus costs that bring the assets to the present condition.