Net book value: how much accounting life is left
It is not what the asset is worth on the market and not what anyone would pay for it. It is an accounting figure, and it is good for one very specific thing: knowing what happens when you sell.
The acquisition price of an asset less its accumulated depreciation and less any impairment recognised.
The formula is short: acquisition price − accumulated depreciation − impairments. What makes it useful is the moment you apply it.
An example with numbers
A van bought for €24,000, depreciated at 16% a year. After three years:
- Accumulated depreciation: 24,000 × 16% × 3 = €11,520
- Net book value: 24,000 − 11,520 = €12,480
If at that point it is sold for €15,000, there is a profit of €2,520 that goes into the year's income, plus the €3,150 of output VAT on the sale. If it is sold for €9,000, there is a loss of €3,480 that is equally deductible.
Why it matters before you sell
Anyone who depreciated the van in full in the first year has a net book value of zero. The day they sell it for €9,000, that whole €9,000 is profit. The expense brought forward three years comes back in one go.
In the annual accounts, the balance sheet shows fixed assets at their acquisition price with accumulated depreciation as a negative figure, so that the net value can be read without doing sums.
The mistake that comes up most
Treating net book value as though it were the selling price. They are independent: a fully depreciated computer can keep working for five years, and a vehicle with a high book value can be worth half that on the market.
Where this carries on in Cairos: Additions, disposals and sales of fixed assets.
Terms that go with this one
Almost no tax concept makes sense on its own. These three are the ones that most often turn up beside it.
Depreciation
The systematic spreading of the cost of a fixed asset across the years in which it is used, as a deductible expense of each of them.
VATCapital goods
Tangible goods intended to be used for more than a year as a tool of the trade or means of production, subject to a multi-year adjustment of the VAT deducted.
AccountingAnnual accounts
The set of documents with which a company closes its financial year, which its general meeting approves and which it files at the Registro Mercantil.
This, handled without thinking about it
Cairos keeps the invoices, the record books and Hacienda's forms from the same data, so the theory on this page turns into boxes that are already filled in.
No card and no minimum term.