The use of net book value promotes a more conservative approach to asset replacement when compared to gross book value.

Question

Quizplus · Accepted Answer

Net book value takes into account the depreciation of an asset, which means its value on the balance sheet is lower than its original cost. This more conservative approach recognizes that an asset may not be worth as much as it originally cost to purchase, and therefore may need to be replaced sooner than if using gross book value.

The Use of Net Book Value Promotes a More Conservative