What is net book value?

Definition

Net book value is the portion of an asset's cost that has not yet been depreciated. On the books, this is a calculated amount on the Balance Sheet, not a separate account you debit and credit.

Gross cost tells you what you paid. Accumulated depreciation is the credit stacked against that cost, and net book value is what is left.

You may also hear carrying value. For a depreciating item, that remaining figure is what a sale or an impairment is measured against.

Where it shows up

Balance Sheet: Related to the asset line after accumulated depreciation.

P&L: Related to gain or loss if the asset is sold for more or less than this amount.

See also: Accumulated Depreciation · Property Plant And Equipment · Fixed Asset Register

When you look at your Balance Sheet, net book value is what remains of the long-lived assets after accumulated depreciation. Some packs print cost and the contra-asset separately; others print only this net amount under property, plant, and equipment, inside non-current assets.

A high figure relative to cost means little depreciation has been taken yet. A low figure means most of the cost has already moved to expense, even if the item is still in use.

The profit and loss statement does not list net book value as a line. Gain or loss appears if you sell the item for more or less than this amount.

Because this is a calculated figure, buying or depreciating an item moves the accounts that feed it. Cash does not move when the net amount changes from depreciation alone.

How it works

You start from original cost in the fixed-asset account. You subtract accumulated depreciation, and the difference is net book value.

No journal entry posts to a net book value account. The journals hit the asset, the contra-asset, cash, and maybe a gain or loss; this figure is the result.

Each period's depreciation expense increases accumulated depreciation. Net book value falls by the same amount, while cash stays put.

Land usually has no accumulated depreciation. Its net book value stays at cost unless it is impaired or sold.

When you sell or retire the item, you compare cash received to this remaining amount. More than net book value is a gain; less is a loss.

If the item is worth less in use than this carrying amount, an impairment can write it down. That write-down lowers net book value without waiting for ordinary depreciation.

The register and the depreciation schedule are how you prove the figure. Each asset's cost and stacked depreciation should add up to the net amount on the statements.

Property, plant, and equipment is often shown at this net amount. The grouping still holds cost; the net line is cost minus the contra-asset.

Example

A moving company bought a van for $20,000. After several years, accumulated depreciation on that van is $8,000.

Net book value is $20,000 minus $8,000, which is $12,000. There is no net book value account to debit.

The Balance Sheet still holds the $20,000 cost, reduced by the $8,000 credit. A pack that prints only the net line would show $12,000 for the van.

If the company sold the van for $14,000 cash, the gain would be $2,000 because proceeds beat this $12,000. If it sold for $10,000, the loss would be $2,000.

Those sale entries hit cash, the van's cost, accumulated depreciation, and a gain or loss. They do not hit a net book value account, because there isn't one.

Common mix-ups

Net book value is not original cost. Cost is what you paid; this figure is cost after depreciation.

Net book value is not a separate account. You do not debit or credit net book value; you debit and credit the asset and accumulated depreciation that produce it.

Net book value is not what the van would sell for tomorrow. Fair value is a market guess; this amount is a book calculation.

Related terms

• Accumulated Depreciation: The contra-asset account holding all depreciation taken on assets to date.
• Property Plant And Equipment: The balance-sheet grouping for land, buildings, machinery, vehicles, and equipment.
• Fixed Asset Register: The subledger listing every capitalized asset the business owns.
• Asset Disposal: Removing an asset and its accumulated depreciation from the books when it is sold or retired.
• Gain On Sale Of Assets: The profit or loss recorded when an asset sells for more or less than book value.
• Depreciation Schedule: The supporting schedule listing each asset, its cost, life, and depreciation to date.
• Asset Impairment: Writing an asset down when its carrying value exceeds what it can actually earn.
• Fixed Assets: Long-lived physical assets used to run the business rather than resold.