What is the term used for the difference between purchase price and market value of an asset?

The term that refers to the difference between the purchase price and the market value of an asset is known as a capital gain or loss. A capital gain occurs when the market value of the asset exceeds its purchase price, indicating an increase in value. Conversely, if the asset’s market value is less than what was originally paid (the purchase price), then it represents a capital loss.

This concept is integral in the understanding of investments and asset valuation. It reflects not only the performance of an asset over time but also influences taxation and financial reporting. Accurate tracking of capital gains and losses is essential for both businesses and individuals in managing their financial portfolios and ensuring compliance with tax obligations.

The other terms provided in the choices represent different concepts. Capital expense relates to the funds used to acquire or improve long-term assets, market adjustment generally refers to changes made to reflect the current market conditions, and net asset value refers to the total value of an entity's assets minus its liabilities. Each of these plays its own role in financial accounting but does not specifically capture the relationship between purchase price and market value as accurately as capital gain or loss.