Carrying Value of Bond What is the Carrying Value of Bond?

Carrying value of a bond is also known as book value or carrying amount of bond and it is nothing but the sum total of the face value and unamortized premiums (if any) less unamortized discounts (if any) of a bond and this amount is usually projected on the issuing company’s balance sheet.

It’s known that are volatile since they fluctuate daily. As the price is not constant, it causes the bond to be traded at a premium or discount according to the difference between the market rate of interest and stated bond interest on the date of issuance. These premiums or discounts are amortized over the life of the bond, thereby making the value of the bond equal to the face value on maturity.

For eg:
Source: Carrying Value of Bond (wallstreetmojo.com)

How to Calculate the Carrying Value of Bond?

is one of the most common ways for amortizing premiums and discounts and perhaps one of the easiest methods for computation of carrying value.

For simplicity, let’s assume a firm issue 3 year bond with a face value of \$100,000 has an annual coupon rate of 8%. The investors view the firm as with considerable risk and are willing to purchase the bond only if it offers a higher yield of 10%.

Since the YTM () of 10% is higher than the coupon rate (8%), the bond shall be sold at a discount. Thus, its carrying value shall be less than its face value of \$100,000.

Let us consider another below example with a Bond Amortization schedule for a bond Par value of \$600,000 for improved understanding:

Below is the basis of calculations:

• A = \$600,000 * 0.06
• B= E * 0.12
• C = A – B
• D = Prior payment unamortized discount minus current discount amortized
• E = Prior carrying balance minus current discount amortized

Whenever there is an issuance of a bond, a premium or discount account is created, which consists of the difference between the face value of the bond and the cash collected through the sale of the bond. While recording them in , the bond premium or discount is netted with bonds payable for computing the carrying value of the bond.

The carrying value/book value of a bond is the actual amount of money an issuer owes the bondholder at a given point in time. This is the par value of the bond less any remaining discounts or including any remaining premiums.

Recording Carrying Value of Bond on Financial Statements

The carrying value or book value of bonds payable includes the following amounts, all of which are found in bond-related liability accounts:

• The face value of the bonds is a credit balance in the account
• The related unamortized discount is a debit balance in the contra-liability account as ‘.’