# Market Value vs Book Value of investments

I understand the concept of market value and book value of investments.

But how does one calculate the book value?

```| Date  | Share purchased | Cost per share || Book Value | Market Value |
| Jan 1 | 10              | \$10            || \$100       | \$100         |
| Feb 1 | 10              | \$20            || \$300       | \$400         |
| Mar 1 | 10              | \$30            || \$600       | \$900         |
| Apr 1 | 10              | \$20            || \$800       | \$800         |
| May 1 | -10             | \$40            || ????       | \$1200        |
```

So the market value is just total shares * the current cost of the share. But what about the book value? Depend on which share I sell, and some calculation will yield higher book values than others...

• Are you looking to calculate the cost basis of your remaining shares for tax purposes, or some other purpose? There are a number of methods and which is appropriate depends on the purpose. Average, LIFO, FIFO, etc. – Chris W. Rea Feb 21 '15 at 21:12

Note that book value has two meanings. From Investopedia:

Book value of an asset is the value at which the asset is carried on a balance sheet and calculated by taking the cost of an asset minus the accumulated depreciation. Book value is also the net asset value of a company, calculated as total assets minus intangible assets (patents, goodwill) and liabilities. For the initial outlay of an investment, book value may be net or gross of expenses such as trading costs, sales taxes, service charges and so on.

The second meaning relates to the company accounting. You'd look that up in shareholder reports. This does not seem to be what you mean.

The first meaning relates to how much you paid for the investment. This is easy to determine if you ignore inflation, trading expenses, and such, as it is just the amount of money you paid. Another confounding factor is selling shares. Your book values are consistent with this meaning, so I'll assume that that is what you mean.

In your case, on April 30th, you own 40 shares for which you paid \$800 (\$10 * 10 + \$20 * 10 + \$30 * 10 + \$20 * 10). So the book value is \$800. If you sell the shares, you can pick which ones. Some common methods used to pick are FIFO, LIFO, and Average.

FIFO (First In First Out). With FIFO, when you sell 10 shares, you sell the first ones that you bought. In this case, that would be the 10 shares you bought on January 1st for \$100. That would give you a new book value of \$800 - \$100 = \$700. If you sold another 10 shares, those would be the ones that you bought on February 1st. So on and so forth.

LIFO (Last In First Out). With LIFO, you sell the most recent ones that you bought. In this case, that would be the 10 April 1st shares that you bought for \$200. The new book value would be \$800 - \$200 = \$600.

Average. With Average, you determine the average price that you paid for your shares and use that to determine the book value of any shares that you sell. In this case, the average price that you paid for your 40 shares is \$800 / 40 = \$20. So you'd have a remaining book value of \$800 - 10 * \$20 = \$600. If you buy more shares, you would add their book value to your remaining book value. So if you bought 10 shares at \$30, your new book value would be \$600 + 10 * \$30 = \$900. Your new average price would be \$900 / 40 = \$22.50.

Note that both FIFO and LIFO can be seen directly from the table. Average requires additional calculations to determine. FIFO is the easiest to follow, as all the shares up to a point are sold. All the later shares are still in your possession. LIFO can have gaps (if you mix selling and buying). And Average requires continual updating.

There may be tax advantages to using the other methods that outweigh their added complexity.

I see from your profile that you are in Canada. In Canada we are required to use what others are calling the "average".

Thus, according to your data, as at April 1, you have paid \$800 for 40 shares. This gives an average cost of \$20 per share.

The sale of 10 shares on 1 May would mean you carry forward a book value of \$600 for the remaining 30 shares. For Capital Gains Tax purposes, on the 10 shares sold, you will have a cost of \$200 against proceeds of \$400 for a net Capital Gain of \$200.

Also note that your stockbroking account will be required to report the book value of your net holding. Further, the cost of trading - i.e., commissions - are also netted from both the cost and proceeds.