Basis Value

DEFINITION of 'Basis Value'

The price of a fixed asset for taxation purposes. Basis value is an asset's base price upon which depreciation and amortization is calculated. It also forms the base price for a fixed asset to which capitalized expenses are added.

BREAKING DOWN 'Basis Value'

Basis value is especially important when it comes to disposal of an asset. For a given sale price, the higher the basis value and consequently depreciated book value, the lower will be the taxable capital gain.


While the accounting departments of large companies closely track the basis values of their fixed assets, small companies that do not have full-time accountants may need to ensure that the basis value of their assets is accurate, and maintain all records in this connection.


Improperly recording expenses, or failing to record them properly, may lead to inaccuracies and over-payment of tax. For example, a fixed asset for which capitalized expenses worth $50,000 have not been recorded, may have a book value (after depreciation) of $100,000 after five years. If it is subsequently sold for $130,000, the taxable gain is $30,000. On the other hand, if the capitalized expenses had been properly recorded, its book value would be significantly higher than $100,000 after five years, and the taxable gain, if it were sold for $130,000 would be much less than $30,000.










RELATED TERMS
  1. Amortization

    1. The paying off of debt in regular installments over a period ...
  2. Taxation

    Taxation refers to the act of a taxing authority actually levying ...
  3. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  5. Capitalize

    An accounting method used to delay the recognition of expenses ...
  6. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
Related Articles
  1. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  2. Retirement

    Footnotes: Early Warning Signs For Investors

    These documents hold very important information, but reading them takes skill.
  3. Fundamental Analysis

    Understanding Pro-Forma Earnings

    These figures can either shed light on a company's performance or skew it. Find out why.
  4. Fundamental Analysis

    Detecting Accounting Manipulation

    "One-time charges" and "investment gains" are two strategies companies can use to distort their numbers.
  5. Markets

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  6. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  7. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  8. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  9. Professionals

    A Day In The Life Of A Public Accountant

    Here's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
  10. Professionals

    A Day in the Life of a Public Accountant

    There’s no typical day in the life of a public accountant, but one accountant’s experience may shed some light on what the career entails.
RELATED FAQS
  1. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  6. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center