Final answer:
The claim that book value reflects fair market value is false. Book value is based on the original cost minus any depreciation and is listed on a balance sheet, which can differ from the current market value of an asset.
Step-by-step explanation:
The statement "The book value of an asset indicates the asset's fair market value at that time" is false.
The book value of an asset refers to the value of the asset as it appears on the balance sheet, which is originally based on the cost of the asset minus any depreciation, amortization, or impairment costs.
This value does not necessarily correspond to the asset's current market value, as market conditions can change, affecting the asset's fair market value independently from its historical cost.
Book value is used as an accounting tool that lists assets and liabilities and is crucial in understanding a bank's balance sheet.
A bank's net worth—also known as bank capital—is pegged to the book value of its assets.