Chapter 2, Problem 3CRCT

Summary Introduction

To critically think about:The reason why a company prepares its balance sheet based on historical costs of the asset instead of the market value.

Introduction:

The book value refers to the value of assets as mentioned in the balance sheet. In other words, it refers to the original cost at which the company purchased an asset minus the depreciation. On the other hand, the market value refers to the price that the asset will fetch if it is sold in the open market.