What is the net book value?
Definition of the net book value
The net book value is how much a fixed asset is showing as worth in your business’s accounts.
When you buy a fixed asset for your business, you record the cost on your balance sheet, because that’s what your business owns.
But if you then want to sell the asset, you won’t get the same price for it as you sold it for. So you have to reduce the amount that the asset is worth to your business, by means of depreciation.
The asset’s original cost, less depreciation posted so far, is its net book value.
Example of the net book value:
A business bought an asset for £3,000 two years ago. It is depreciating the asset at 25% using the straight-line method of calculation. That means its depreciation will be £3,000 x 25% = £750 per year.
At the end of the second year, the asset’s net book value will be £3,000 - (£750 x 2) = £1,500.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.