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The portion of the acquisition cost of the asset, yet to be allocated to Profit and Loss Account is known as ________
- a)Book value
- b)Accumulated value
- c)Realisable value
- d)Salvage value
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
The portion of the acquisition cost of the asset, yet to be allocated ...
Book value literally means the value of the business according to its "books" or financial statements. In this case, book value is calculated from the balance sheet, and it's the difference between a company's total assets and total liabilities.
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The portion of the acquisition cost of the asset, yet to be allocated ...
Understanding Book Value
The term "Book Value" refers to the portion of the acquisition cost of an asset that has not yet been allocated to the Profit and Loss Account. This concept is essential in accounting and financial reporting.
Key Characteristics of Book Value:
- Definition: Book value represents the net value of an asset as recorded on the balance sheet. It is the original cost of the asset minus any accumulated depreciation, amortization, or impairment costs.
- Calculation: To determine the book value, you subtract the accumulated depreciation from the asset's acquisition cost. For example, if an asset was purchased for $100,000 and has accumulated depreciation of $30,000, the book value would be $70,000.
- Importance: Book value is crucial for assessing the financial health of a company. It provides insight into how much value an asset retains over time and helps in making informed investment and financial decisions.
- Comparison with Other Values: Unlike realizable value (the amount expected to be received upon sale) or salvage value (the estimated residual value at the end of its useful life), book value focuses strictly on the accounting perspective of the asset's worth.
- Usage in Financial Analysis: Investors and analysts often compare book value to market value to assess whether an asset or company is undervalued or overvalued, guiding investment strategies.
Conclusion
In conclusion, book value is a vital accounting measure that reflects the unallocated acquisition cost of an asset. Understanding this concept helps in evaluating the asset's value over time and making strategic financial choices.
The term "Book Value" refers to the portion of the acquisition cost of an asset that has not yet been allocated to the Profit and Loss Account. This concept is essential in accounting and financial reporting.
Key Characteristics of Book Value:
- Definition: Book value represents the net value of an asset as recorded on the balance sheet. It is the original cost of the asset minus any accumulated depreciation, amortization, or impairment costs.
- Calculation: To determine the book value, you subtract the accumulated depreciation from the asset's acquisition cost. For example, if an asset was purchased for $100,000 and has accumulated depreciation of $30,000, the book value would be $70,000.
- Importance: Book value is crucial for assessing the financial health of a company. It provides insight into how much value an asset retains over time and helps in making informed investment and financial decisions.
- Comparison with Other Values: Unlike realizable value (the amount expected to be received upon sale) or salvage value (the estimated residual value at the end of its useful life), book value focuses strictly on the accounting perspective of the asset's worth.
- Usage in Financial Analysis: Investors and analysts often compare book value to market value to assess whether an asset or company is undervalued or overvalued, guiding investment strategies.
Conclusion
In conclusion, book value is a vital accounting measure that reflects the unallocated acquisition cost of an asset. Understanding this concept helps in evaluating the asset's value over time and making strategic financial choices.
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The portion of the acquisition cost of the asset, yet to be allocated to Profit and Loss Account is known as ________a)Book valueb)Accumulated valuec)Realisable valued)Salvage valueCorrect answer is option 'A'. Can you explain this answer?
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