I am wrapping my head around a concept. Book Value, The text book, and my instru

Question

I am wrapping my head around a concept. Book Value, The text book, and my instructors slides are a great resource.

However, I am wanting to get some more external input on the concept. Here's why. There are so many different ways that the book is calling book value.

Allow me to list:

- Book Value is

- - the remaining unallocated cost of an asset.

- - equal to; Cost - Depreciation Charges

- - The vertical Axis labeled Money

- - Different from Market value, because MV tends to increase, but the book value will decrease as depreciation charges are taken.

Here's what I hope someone can do, put this in simple terms such that a slow person (cus I am) could understand it. When I was a kid, I really liked motorcycles, I still do. My dad would put things in terms of things I like. I hope someone could do that for me here?

I like video games,

Motorcycles,

Swimming.

Perhaps you could put in those terms?

I think I am following it vaguely based on the mature business like terms that the book is providing however I think I could walk away from this far more informed if it could get put in such simple terms.

Thanks much for your time.

Explanation / Answer

Example:

If you started one business like goods delivery services through motorcycles, and purchased 10 motorcycles with total cost of $500,000. You have estimated each motorcycles useful life is 10 years and after 10 years all motorcycles can sale for $50,000 as scrap.

In the business we cannot consider $500,000 as expense for first year. Hence, it will useful for 10 years, therefore, we need to allocate this expense as per their useful life basis. This expense is called as depreciation expense. It is calculated as below.

Depreciation expense = Total purchase cost of asset - Scrap value / Estimated useful life of asset

= ($500,000 - $50,000) / 10 years

= $45,000 per year

Book value is the amount after deducting the accumulated deprecition expense from the total cost of the asset. Mean that remaining useful value of the asset.

Book value after one year = $500,000 - $45,000

                                      = $455,000

Book value after two years = $500,000 - $45,000 - $45,000

                                       = $410,000

I hope it can be helpful for you....

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.