By the book
When it comes to a company’s machinery and equipment assets, they are most often depreciated on a predetermined accounting schedule based on its specific tax strategy. With commercial machinery and equipment, this is usually done on a straight-line basis over a relatively short amount of time.
In reality, however, many of a company’s commercial machinery and equipment assets have long, useful “lives” and maintain a strong baseline of value as they are operable. This unique dynamic is an interesting example of the difference between the net book value and market value of a company’s assets – and an important reminder of how an experienced machinery and equipment appraiser can help a business owner understand that difference.
For machinery and equipment assets, net book value is a taxable value that does not reflect the actual value of the assets in the marketplace. It is not uncommon for us to see assets, such as heavy machinery, which have been depreciated on the accounting schedule to a $0 net book value but which are worth over $100,000 in the used marketplace.
Market value, on the other hand, is the actual worth of an asset in the marketplace. This could be the value to an outside buyer for a single piece of equipment, or it could be the value of an entire facility to a going concern business buyer. Unlike net book value, market value is almost never $0. Almost every functioning machinery and equipment asset will have some market value. Even obsolete and damaged assets typically have value in parts salvage or scrap materials.
The potential difference between net book value and market value can have a profound impact on a company in a number of ways, as you can imagine. An experienced machinery and equipment appraiser can work to ensure accurate market value on behalf of a company – which can be critical in a number of situations, including collateral financing, purchase price allocation, buy / sell agreements, and other situations where net book value is not an accurate estimation of market value.
Want to learn more about the differences between book and market value and how it can impact your asset appraisal? Reach out to start the conversation!