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Market Value is Just What it Says It Is

Market valuec simply means "value set by the market," not by government, not by sellers, not by pricing historycan mean. In practical terms this can mean:

  • The price at which something is actually selling in the market.
  • What sellers could actually obtain for property.
  • thehe price potential customers are bidding (willing to pay) for an item.

Value, in other words, is determined by the market—not by government decree and not by the seller's asking price.

When assets change value, owners must report the changes publicly
 
Accountants use the "Lower of cost or market" rule to
adjust the Balance sheet value of certain inventories and securities holdings when their market values change.  [Photo: Posting share prices at the New York Stock Exchange, New York City, 1942. ]

For some kinds of assets, goods, or services, the current  market value is easily known from current trading activity, especially where the market is essentially an "auction" market.

  • The current market values of publicly traded stock shares and bonds, precious metals and minerals, and commodities such as oil, are knowable with near certainty from many kinds of information sources.
  • The market values of such actively traded items changes continuously, however, and any stated future market value has to be viewed as a less-than-certain estimate.
  • For more on the role of market value in accounting, see the Encyclopedia entry on the Lower of Cost or Market Rule.

For other things, such as real estate, used cars, antiques, artworks, or custom-built production assets,  the "market value" used for accounting purposes, tax purposes, or for setting prices, also has to be regarded as an estimate. In such cases, an acceptable market value (estimate) is usually based on the judgment of an expert with good market knowledge and the recent selling prices of similar items in the same market.

Note that Market value for assets may be different from the book value carried on the Balance Sheet for assets.

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