- Trending Categories
- Data Structure
- Operating System
- MS Excel
- C Programming
- Social Studies
- Fashion Studies
- Legal Studies
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
What is the difference between Book Value and Replacement Value?
In finance, assets are considered at their historical cost rather than present value. Therefore, the price gets depreciated over the years. Sometimes, book value represents net cost minus the amortized value. The book value of debt is represented at its outstanding amount.
The difference between book values of assets and liabilities is always equal to net worth or shareholders' funds. Net worth divided by the number of shares gives the value of book value per share. The book value considers cost rather than value. By value, it means the worth of an asset today in terms of its potential advantages and benefits. Book value may be applied to intangible assets too.
Replacement value gives the value of expenses to sell tangible assets of the company today to replace the assets with new items. Replacement value is hard to calculate because it is tough to estimate the current value of a company perfectly. Replacement value ignores the cost of intangible assets and the utility of all existing assets.
Note − Replacement cost is only applied to tangible assets, while book value may be associated with intangibles too.
Differences between Book Value and Replacement Value
The terms "book value" and "replacement value" represent two different concepts. Book value is a term mostly used in accounting, while replacement value is related more to insurance. Replacement value is hardly used in accounting.
Replacement value is an alternative way of measuring the cost of assets if they were to be replaced today. Replacement value is usually higher than book value as it does not subtract the depreciation.
Replacement value is the value that is equal to the price of the asset to be replaced in its working or last updated condition. Book value is concerned more with the present value with the depreciation of an asset that is in working condition or doesn't have a physical form.
The total depreciation in the case of replacement cost remains the same, while it changes in the case of book value.
Replacement costs are related more to the replacement of old assets with new ones while book value is concerned more with sales. In that sense, in the case of book value, the assets are completely sold according to book value while estimation is done in case of the replacement cost before replacement.
Note − Although book value and replacement value look like two sides of the same coin, they are different in most senses.
- Related Articles
- Difference between book value and market value.
- Difference between Book Value and Market Value of a Share
- What is the difference between Market Value and Present Value?
- What is the difference between Liquidation Value and Going Concern Value?
- What is difference between cash account and cash book?
- Write the difference between present value and future value.
- Write the difference between present value and net present value.
- What is the difference between pass by value and reference parameters in C#?
- Difference between Growth Funds and Value Funds
- Difference between Tax Depreciation and Book Depreciation
- Difference between Call by Value and Call by Reference
- Differentiate between fair value and market value
- How to calculate the Book Value of an Ordinary Share?
- Difference between Net Present Value (NPV) and Profitability Index (PI)
- Difference between compounding and discounting techniques in time value of money.