Fixed Assets Net Book Value | Formula | Example
Fixed assets net book value is the balance of fixed assets that is equal to cost less accumulated depreciation. It is the net amount recorded on the company balance sheet.
The cost of fixed assets is the amount that a company spends to acquire the cost to use. It includes the cost to purchase fixed assets plus other costs that bring them to be ready to use.
The cost of fixed assets includes the following:
- Purchase price and the related tax which is not claimable
- Import duty
- Installation costs include the site preparation
- Testing and other professional fees
The accumulated depreciation is the total depreciation from the day company purchase assets up to the reporting date. The company started depreciating fixed assets when they are ready to use. So it is the time when we start to record accumulated depreciation as well.
Net book value of fixed assets is equal to the cost less accumulated depreciation. The cost is always bigger than the accumulated depreciation. So the net book value is always positive. It cannot be negative.
It is also known as the carrying amount on balance sheet. The carrying amount is the balance of fixed assets on the financial statement at a reporting date.
Net Book Value Formula
As we discussed above, net book value equal to the cost less accumulated depreciation.
💡 Net Book Value = Cost – Accumulated Depreciation
The balance of accumulated depreciation may be different depending on the company depreciation method.
Example
A company purchase a car cost $ 200,000 from the supplier. The management team expects to use the car for five years. The scrap value is estimated to be around $ 20,000. The company uses the straight-line depreciation method. Please calculate the car net book value from the end of year one to year five.
To calculate the net book value we have to determine the cost and accumulated depreciation.
The cost is the purchase price of $ 200,000.
The accumulated depreciation depends on the depreciation per year.
Depreciation = ($ 200,000 – $ 20,000)/5 year = $ 36,000 per year.
Every year the company has to record the depreciation expense of $ 36,000 and it will increase the accumulated depreciation by the same amount. And it will decrease the car’s net book value as well. Please refer to the table below.
| Year | Cost | Depreciation per year | Accumulated Depreciation | Net Book Value |
|---|---|---|---|---|
| 1 | 200,000 | 36,000 | 36,000 | 164,000 |
| 2 | 200,000 | 36,000 | 72,000 | 128,000 |
| 3 | 200,000 | 36,000 | 108,000 | 92,000 |
| 4 | 200,000 | 36,000 | 144,000 | 56,000 |
| 5 | 200,000 | 36,000 | 180,000 | 20,000 |
As the company uses straight-line depreciation, the depreciation expense is the same over the asset life. It leads to an increase in accumulated depreciation for the same amount.
As we can see the net book value decrease from $ 164,000 in the first year to $ 20,000 at the end of year five. The remaining balance $ 20,000 is the scrap value which company estimated. If the fixed asset does not have scrap value, the net book value should be zero.