How is book value defined?

Book value is defined as the value of an asset as recorded in a company’s accounts. This definition is based on the historical cost of the asset, which is the amount paid for it at the time of purchase. The book value also accounts for any depreciation or amortization that has been applied over time, reflecting the asset's net value on the balance sheet.

This definition is fundamental in accounting and finance, as it provides a clear and consistent method for reporting the value of assets and liabilities. By relying on recorded values, companies ensure that their financial statements are grounded in actual transactions, which enhances comparability between entities and over time.

In contrast, while market value might fluctuate based on supply and demand, book value remains relatively stable unless there are adjustments necessary from depreciation or impairment. Other options, such as future value or appraised value, introduce subjective components that can vary significantly based on estimates, assumptions, or market conditions, which is not how book value is determined.