EX 3-20 Book value of fixed assets

In a recent balance sheet, Microsoft Corporation reported Property, Plant, and Equipment of $27,804 million and Accumulated Depreciation of $14,793 million.

a. What was the book value of the fixed assets?

b.  Would the book value of Microsoft’s fixed assets normally approximate their market values?

Answers:

a. $13,011 million ($27,804 – $14,793)

b. No. Depreciation is an allocation method, not a valuation method. That is, depreciation allocates the cost of a fixed asset over its useful life. Depreciation does not attempt to measure market values, which may vary significantly from year to year.