Question

The book value of a property in a particular year is the:
1. value at the end of utility period
2. original cost minus the amount of depreciation till date
3. market value
4. original cost minus the amount of depreciation up to the previous year

Answer 1

Correct Answer - Option 4 : original cost minus the amount of depreciation up to the previous year

Explanation:

Some important definitions in valuation:

1. Book value: 

• It is the amount shown in the account book after allowing necessary depreciations.
• The Book Value of the property at a particular year is the original cost minus the amount of depreciation up to a previous year.
• The Book Value depends upon the amount of depreciation allowed per year and will gradually increase year to year.
• Book value = Original cost – Depreciation

1. Market value: The value of a property in an open market and it depends upon time.
3. Obsolescence: the value of any structure becomes less by it becoming out of date style, structural design, etc termed as obsolescence.
4. Scrap value: It is the value of dismantled materials for a building when its life is over. The scrap value of a building may be about 10% of its total cost of construction.
5. Salvage value: It is the value at the end of the utility period without being dismantled. It may be zero, positive and negative.
6. Distress value: Some time due to fear of war or riot the value of a property cannot fetch the full market value. Then this value of the property is called distress value.