In evaluating a small business with a book value and earnings, which metric represents the historical cost of assets minus depreciation?

In evaluating a small business with a book value and earnings, which metric represents the historical cost of assets minus depreciation?

• A. Book value
• B. Market value
• C. Earnings
• D. Revenue

Answer: (A)

Book value reflects the accounting value of assets after subtracting accumulated depreciation from their original cost. It shows what the assets were purchased for, adjusted for wear and tear, on the balance sheet. This makes it the best fit for representing the historical cost of assets minus depreciation. Market value, by contrast, would be the current price assets could fetch in the market, which can differ from their book value. Earnings measure profitability over a period, not the cost basis of assets, and revenue reflects total sales, not the value of assets after depreciation.

Book value reflects the accounting value of assets after subtracting accumulated depreciation from their original cost. It shows what the assets were purchased for, adjusted for wear and tear, on the balance sheet. This makes it the best fit for representing the historical cost of assets minus depreciation.

Market value, by contrast, would be the current price assets could fetch in the market, which can differ from their book value. Earnings measure profitability over a period, not the cost basis of assets, and revenue reflects total sales, not the value of assets after depreciation.