How is Market Value defined?

Market value is defined as the value at which property would sell in an open market under normal conditions. This definition emphasizes the concept of fair value, which reflects what buyers are willing to pay for an asset and what sellers are willing to accept. It takes into account current market conditions, demand for the asset, and the characteristics of the asset itself, thus providing a real-world perspective on the value of an asset.

This understanding is essential in financial accounting as it influences various financial decisions, including investment valuation and asset sales. Unlike historical cost, which reflects the price paid for an asset at the time of acquisition, market value provides a dynamic view based on current market conditions. This can lead to a significant difference in the value representation of assets, particularly for investments and real estate.

Moreover, while book value represents the value of an asset on the balance sheet, calculated as the cost minus accumulated depreciation, it does not account for market price fluctuations. Total revenues of a corporation, on the other hand, are related to income generation but do not pertain to the valuation of individual assets. Thus, defining market value as the price at which property would sell aligns closely with the principles of fair value measurement in financial accounting.