The book value is understood as the value of tangible and intangible assets at which they are taken into account. In other words, this is the value of the property, which is reflected in the balance sheet of the enterprise. Depreciation is applied to more accurately reflect the book value.
Instructions
Step 1
The property can be accepted on the balance sheet of the enterprise at its original cost and at its replacement cost. The initial carrying amount will include the acquisition, construction, commissioning of new production or non-production assets.
Step 2
Replacement value refers to the purchase price of the property at market prices at a specified date. If the amount of the initial cost is determined as a set of costs, then the replacement cost is calculated based on the analysis of average market prices. The replacement cost is often adjusted as a result of revaluation.
Step 3
The book value is constantly being updated due to the fact that the property of the enterprise wears out, i.e. its depreciation is taken into account. Therefore, the book value of assets is determined as the difference between the initial value of the property accepted on the balance sheet and the amount of accrued depreciation.
Step 4
The need to determine the book value takes place in joint stock companies. If a transaction related to the alienation or acquisition of property is more than 25 percent of the value of the balance sheet property, it is considered major. The decision on such a transaction is made by the meeting of directors or the general meeting of shareholders. In case of incorrect determination of the book value in this case, the transaction may be considered invalid.
Step 5
It should be remembered that the book value of the assets of the enterprise must be determined at the date of the transaction. In joint-stock companies, it is rather problematic to draw up a balance sheet for an interim date, since most of the transactions are performed at the end of the reporting period. Therefore, Russian legislation provides for the determination of the book value of assets, in order to make a decision on the size of the transaction, as of the last reporting date (month or quarter).
