Can someone explain Book Value vs Fair Value vs Market Value


Joined
Jul 11, 2010
Messages
2
Reaction score
0
I find different definitions all over the net. Can some one clear up the difference for me and give me an example. Please.
 
Ad

Advertisements

kirby

VIP Member
Joined
May 12, 2011
Messages
2,336
Reaction score
318
Country
United States
Let's say you buy a security for $100,000 on day one. So you record it on books at what you paid for it. Book value = $100,000. A week later you find that it has a fair market value of $120,000. So if you determined this was available for sale then the accounting is to report it at its fair market value on the balance sheet. Fair market value = $120,000. So fair value and market value are the same concept, just sometimes folks use different words.
 
Ad

Advertisements

Joined
May 16, 2011
Messages
2
Reaction score
0
As mentioned already, fair value and market value are the same. It is the price at which the item in question can be sold (in the market) at a given date.

This value can differ from the book value of the item, which is the amount that you initially paid for it. Maybe you paid less than the market value (discount) for the item, or you may have paid more for the item (premium).

In simple terms, say you bought a house for $250k (book value). 5 years later, you want to sell the home. A similar house in your neighborhood sold for $220k (fair market value) last week. Not taking depreciation into account, your asset is theoretically being held on the books at an amount higher than the fair market value of your home.
 
Last edited:

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top