Broadly speaking, it refers to the historical cost of an entity’s assets (total assets) minus its liabilities (total liabilities) (hence it is called the book value of a company). It is the amount of its owners’ equity reported on its statement of financial position (balance sheet). However, this value doesn’t give an indication of its market value.

The book value (or carrying value at inception or entry) of an asset (particularly a depreciable asset) is its original cost adjusted (netted off) against its respective accumulated depreciation since the date of acquirement. A depreciable assets loses a portion of its value time to time, reflecting wear and tear (this loss or impairment is usually identified as depreciation expense representing the portion of the asset’s cost that expired at a specific time). It is the net amount of an asset recorded on the statement of financial position: its gross cost minus its respective valuation allowance. For example, the book value of a piece of equipment is its initial cost less the balance of its accumulated depreciation since the very date of its acquirement.

For a liability, book value refers the full amount (par value) of the liability minus the amount of repayment, i.e., the reported value in the books of an entity according to its historical cost. This includes all types of liabilities such as trade liabilities and related provisions.