The book value of a firm is:
A) equivalent to the firm's market value provided that the firm has some fixed assets.
B) based on historical cost.
C) generally greater than the market value when fixed assets are included.
D) more of a financial than an accounting valuation.
E) adjusted to the market value whenever the market value exceeds the stated book value.

Question

Quizplus · Accepted Answer

The book value of a firm is based on historical cost, which is the actual cost incurred to acquire assets less any accumulated depreciation or amortization. It does not take into consideration changes in market value or other factors that may affect the current value of the assets. Therefore, option B is the correct answer.

The Book Value of a Firm Is