Concept:When depreciation is provided, a fixed asset is reported in the balance sheet at its net book value, which means the original cost less the total accumulated depreciation.
Explanation:Depreciation spreads the cost of a fixed asset over its useful life because the asset loses value through use, passage of time, or obsolescence.
The total depreciation recorded up to the balance sheet date is called the provision for depreciation or accumulated depreciation.
Under the historical cost convention, fixed assets are not shown at market value.
The asset is, therefore, stated at cost minus the accumulated depreciation already provided.
This resulting figure is called the book value, carrying amount, or net book value of the asset.
In simple terms, the balance sheet presentation is
Book value=Cost−Accumulated depreciation.For instance, if an asset was bought for
$10,000 and depreciation of
$2,000 has been provided, the asset appears at
$10,000−$2,000=$8,000.
This represents the unexpired portion of the cost that will benefit future periods, not the price the asset could fetch if sold today.
Answer:The fixed asset is shown at book value, that is, cost less accumulated depreciation.