Carrying Value  Carrying Value Definition

Carrying value is the reported cost of assets in the company’s balance sheet, wherein its value is calculated as the original cost less than the accumulated depreciation/impairments. The intangible asset is calculated as the actual cost less the amortization expense/impairments.

In simple words, it is the value of an asset in the books of accounts/balance sheet less the amount of depreciation on the asset’s value based on its useful life. In other words, we can say it is equal to the  because it is not the same as the market/fair value of an asset.

Carrying Value Formula and Calculation

Below are the formulas for carrying the value of an asset and bond.

Carrying value of asset = Original price of an asset – Depreciation value

Carrying the weight of bond = Face value of bond + unamortized premium – unamortized discount

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

Examples

#1 – Carrying Value of Asset

Let’s assume that a company owns a plant and machinery amounting to \$1,00,000 to produce certain company products. The above machinery has a depreciation value of \$4000 and has a useful life of 15 years.

Please note that the cost of plant & machinery includes transportation, insurance, installation, and other testing charges necessary to get the asset ready for its use.

#2 – Carrying Value of Bond

When the  is too high, investors pay a higher premium on the price of the bond. Conversely, if the bond’s price is low, the investors purchase the same at the discounted price. However, this depends upon the market rate of interest on the bond’s issuance date.

These premiums and discounts are amortized throughout the bond’s life so that the bond matures its book value, which is equal to its face value.

In simple words, we can say that the bond’s carrying value means the bond’s par value plus the unamortized premium and less the unamortized discount. The same is reported in the company’s balance sheet and is also called the book value.

For example, the bond’s face value is \$ 1000, and the date of the bond issue is January 1, 2019, and the maturity date is December 31, 2021. Let’s assume the coupon rate is at 5%.

Now, when the bond is issued, investors will require a rate of return of 4%.

First, we need to check whether the bond is issued on a premium or discount. Preferably, we must be aware of the market rate of interest, which is 4%. The interest rate is less than the coupon rate, i.e., 5%. Therefore, the , i.e., \$ 1250. Suppose after two years, \$100 is amortized. Thus, the bond’s carrying value is \$1,000 plus \$150, i.e., \$1,150; and vice versa, they can sell the bond if the market interest rate is 6%.

Difference between the Carrying Value vs. Fair Value

 Carrying Value Fair Value It is the book value or the asset value, which is the actual cost of the asset. The fair value of assets and liabilities is calculated on mark-to-market. It is based on the figures from an entity’s balance sheet; Whereas, the fair value figures depicts the value of the assets sold in the open market. It is calculated by taking the difference of the assets and liabilities on the balance sheet, also known as the Net Worth of the company; Calculated by multiplying the market price per share with the number of shares outstanding; Based on the historical cost of the asset. Based on the current market price of the assets.
Note: We have used the word ‘amortized’ several times in our article. It means the spreading of intangible assets cost over the assets’ useful life, unlike depreciation. Intangible assets are not tangible assets. Examples of are copyrights, patents, software, franchise agreements, trademarks, etc.

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