Why is book value different from real market value?

Book value is defined as the value of an asset according to its balance sheet account balance. It represents the original cost of an asset minus any accumulated depreciation, amortization, or impairment costs. This value is a reflection of the historical costs relevant to the asset's purchase and the company’s accounting practices.

The distinction between book value and real market value arises because real market value takes into account what buyers are willing to pay for an asset in the current market, which can be influenced by various factors such as demand, current economic conditions, and potential future earnings. These market dynamics may not be reflected in the book value, as financial accounting focuses on historical costs rather than present-day valuations.

Thus, the correct answer highlights that book value is specifically tied to the recorded financial value in the company's accounts, not necessarily aligning with current market prices, which can fluctuate independently of these recorded amounts.