Difference between Book Value and Market Value

Updated on June 15, 2017

If you ask an accountant, “What is the value of my property?” you are probably going to be answered with another question: “Do you want to know the book value or the market value?” So, what is the difference between the two? And why is it important to know an asset’s book value and market value? Read on.

Descriptions

Book Value

Book value, as the name suggests, is the value of an asset based on its financial statements or “books.” It is also called “accounting value” or “carrying value.”

Typically, book value is the original amount of money paid by a company for a particular asset minus the amortization, depreciation, and depletion made against the asset. This amount is constant; it does not change as long as the asset is under your ownership.

Say you bought a delivery van in 2015 for $400,000. If its accumulated depreciation is $120,000, its book value is $280,000.

On the other hand, market value is the current price of an asset if you are to sell it to somebody else. It can also be based on the asset’s capability to generate cash.

Depending on the type of asset, market value can be based on the current supply and demand or on a professional appraiser’s evaluation (especially for real estate).

Let’s say you bought a building in 2007 for $600,000. Because of the improvements and developments in the area, your building is now priced at $1,200,000 according to a professional appraiser. The current price of $1,200,000 is your building’s market value.

Book Value vs Market Value

What, then, is the difference between book value and market value?

Book value is the value of an asset according to the financial statements or “books.” It is usually the initial price paid to acquire the asset less any amortization, depreciation, and depletion. On the contrary, market value is the current selling price of an asset. It can also be based on the asset’s capability to generate cash.

By understanding the difference between book and market value, you will be able to determine if there is profit or loss. If the book value is less than the market value, it implies financial gain. However, if the market value is less than the book value, there is loss incurred.

Comparison Chart

Book ValueMarket Value
The value of an asset based on its financial statements or “books”; typically the original amount of money paid for an asset minus the amortization, depreciation, and depletion made against the asset; also called “accounting value” or “carrying value”The current price of an asset if you were to sell it; can also be based on the asset’s capability to generate cash