Amortized value is the current value of fixed assets adjusted from the original cost to reflect fair market value. Depreciation and amortization are key factors in calculating current value, and it is useful for tax and loan purposes.
Sometimes called net book value, amortized value has to do with the current value of fixed assets that appear on a company’s financial records. The actual amount of depreciated value is adjusted from the original cost of the item to more accurately reflect the fair market value of the asset or assets in the current economic climate. As a result, it is not unusual for companies to adjust the depreciated value of some assets at least once a year.
Two of the key factors that go into calculating a current depreciated value are depreciation and amortization. The process will always start with the original or initial value of the asset in question. That historical figure will be adjusted based on the amount of depreciation that is currently allowed under the existing tax structure. In many cases, this means that there is a percentage of depreciation that can take place within a given calendar year, based on the asset’s normal use. Depreciation of the asset further helps align the published net asset value with current economic conditions, resulting in a realistic picture of the asset’s current value.
Companies can allow the concept of depreciated value to any number of fixed assets. Production machinery is an excellent example of assets that are eligible for this process. Over time, the machinery will become somewhat less valuable, due to the release of improved versions combined with the continued use of the equipment in the production process. Maintaining a correctly calculated depreciated value for machinery helps make the task of determining the company’s current assets much more accurate. This can be especially helpful when preparing quarterly and annual tax documents, as tax breaks can be very helpful to the company.
Knowing the current net book value will also be helpful when applying for business loans. Lenders will want to know the current market value of tangible assets, not what the business paid for the asset three or four years ago. From this perspective, the written value can help assure the lender that the applicant has sufficient resources to call upon if necessary to pay off the outstanding balance on the loan.
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