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Discuss the Difference Between Book Values and Market Values on the Statement

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Essay

Discuss the difference between book values and market values on the Statement of Financial Position and explain which is more important to the financial manager and why.


Definitions:

Equilibrium Value

A state in which market supply and demand balance each other, and, as a result, prices become stable.

Price Level

An index of the average prices of goods and services throughout an economy, often used to measure inflation.

Nominal GDP

The gross domestic product measured in current prices, without adjustment for inflation.

Classical Dichotomy

The theoretical separation of nominal and real variables in the economy, suggesting that changes in the money supply only affect nominal variables.

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