Brief Definition
Book basis refers to the value of an asset or liability as recorded in a company’s financial statements.
Further Explanation
Book basis refers to the value of an asset or liability as recorded in a company’s financial statements. This value is based on the original cost of the asset or liability, adjusted for any depreciation, amortization, impairments, or other accounting adjustments made over time. The book basis is also known as the carrying value or book value.
Example:
A company purchases a piece of machinery for $100,000. It records the machinery at this cost on its balance sheet. Over the next five years, the company depreciates the machinery at $10,000 per year.
Book Basis:
= $100,000 – (5 x $10,000)
= $50,000