What Is a Book Value Method?
The book value method is a method of valuing liquidated property based on the book value of the property, which is the historical value minus the value after depreciation.
Book value method
- Book value method
- The accuracy of the book value method depends on the degree of difference between the book value of the asset and the actual market value. There are three reasons for this:
- 1,
- Therefore, in the application, the book value method should be adjusted appropriately. The specific adjustment methods are:
- 1,
- The book value method is a static valuation standard. It is based on the balance sheet and does not take into account the current fluctuations in the market value of assets or asset returns. Therefore, there are two major disadvantages.
- 1. There is a difference between the book price and the market price;
- 2. Make hidden assets that are off-balance sheet ignored. Even through adjustment, it is difficult to judge whether the adjusted book value accurately reflects the market price, and the value adjustment does not take into account the value of off-balance sheet assets. Therefore, it can only be a preliminary means for the target company to determine its value, and it is a reference indicator.