During a balance sheet review, what do you subtract from total long-term assets?

In a balance sheet review, subtracting accumulated depreciation from total long-term assets is essential because accumulated depreciation represents the total wear and tear, consumption, or reduction in value of physical assets over time. Long-term assets, such as property, plant, and equipment, are recorded at their original purchase price, but as these assets age, it is necessary to reflect their current fair value, which is impacted by accumulated depreciation.

By subtracting accumulated depreciation from total long-term assets, you derive the net book value of those assets, providing a more accurate representation of what the company owns in terms of long-term fixed assets. This net value is critical for financial analysis as it affects both the asset side of the balance sheet and various profitability ratios, helping stakeholders assess the company’s performance and financial health.

In contrast, the other options do not directly relate to the adjustment needed for determining the net value of long-term assets. For example, total liabilities represent obligations, whereas shareholders' equity reflects ownership interest in the company, and current assets pertain to assets expected to be converted into cash within a year. Thus, they do not provide the necessary adjustment to accurately reflect the value of long-term assets on the balance sheet.