carrying value

(noun)

In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or Impairment costs made against the asset.

Related Terms

Examples of carrying value in the following topics:

  • Goodwill Impairment

    • Instead of deducting the value of goodwill annually over a period of maximal 40 years ( amortization ), companies are now required to determine the fair value of the reporting units, using the present value of future cash flow , and compare it to their carrying value (book value of assets + goodwill - liabilities. ).
    • If the fair value is less than carrying value (impaired), the goodwill value will need to be reduced so that the fair value is equal to carrying value.
    • An impairment cost must be included under expenses when the carrying value of a non-current asset on the balance sheet exceeds the asset's market value subtracted by any transaction costs (recoverable amount).
    • The impairment cost is calculated as follows: carrying value - recoverable amount.
    • The carrying amount is defined as the value of the asset as it is displayed on the balance sheet.

  • Redeeming at Maturity

    • The carrying value of bonds at maturity will always equal their par value.
    • For a bond sold at discount, its carrying value will increase and equal their par value at maturity.
    • For a bond sold at premium, its carrying value will decrease and equal the par value at maturity.
    • In case of a zero coupon bond, only the amount of par value is paid when the bond is redeemed at maturity.
    • Keep in mind the carrying value - cash paid to retire bonds = gain or loss on bond retirement

  • Reporting Equity Investments

    • At the time of purchase, goodwill can arise from the difference between the cost of the investment and the book value of the underlying assets.
    • The component that can give rise to goodwill is: the difference between the fair market value of the underlying assets and their book value .
    • To test goodwill for impairment, companies are now required to determine the fair value of the reporting units, using the present value of future cash flow, and compare it to their carrying value (book value of assets plus goodwill minus liabilities).
    • If the fair value is less than carrying value (impaired), the goodwill value needs to be reduced so that the fair value is equal to the carrying value.
    • Goodwill is an accounting concept meaning the excess value of an asset acquired over its book value due to a company's competitive advantages.

  • Market Value vs. Book Value

    • Book value is the price paid for a particular asset, while market value is the price at which you could presently sell the same asset.
    • Market value is often used interchangeably with open market value, fair value, or fair market value.
    • In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance.
    • In many cases, the carrying value of an asset and its market value will differ greatly.
    • If the asset is valued on the balance at market value, then its book value is equal to the market value.

  • Fair Value Method

    • The ownership of less than 20% creates an investment position carried at fair market value in the investor's balance sheet.
    • The ownership of less than 20% creates an investment position carried at historic book value or fair value (if available for sale or held for trading) in the investor's balance sheet.
    • This is used for assets whose carrying value is based on mark-to-market valuations; for assets carried at historical cost, the fair value of the asset is not used.
    • Fair market value (FMV) is an estimate of the market value of a property.
    • Explain how the Fair Value Method is used to calculate the value of holding of less than 20%

  • Lower of Cost or Market

    • In lower of cost or market (LCM), inventory items are written down to market value when the market value is less than the cost of the items.
    • Thus, the inventory has lost value.
    • If the inventory has decreased in value below historical cost, then its carrying value is reduced and reported on the balance sheet.
    • Under LCM, inventory items are written down to market value when the market value is less than the cost of the items.
    • The replacement cost of last-in, first-out inventories exceeds carrying value by approximately USD 169 million.

  • Calculating Fair Value

    • Calculating fair value involves considering objective factors including acquisition, supply vs. demand, actual utility, and perceived value.
    • This is used for assets whose carrying value is based on mark-to-market valuations; for assets carried at historical cost, the fair value of the asset is not used.
    • Adjustments are debited (for gains in fair value) or credited (for losses) to a fair value adjustment account that will adjust the investment account balance to its fair value at the end of the reporting period.
    • For investments where the fair value is not readily determinable, the investment is carried at cost.
    • Summarize how to calculate fair value for holdings of less than 20%

  • Basic Components of Asset Valuation

    • Assets are valued using absolute value, relative value, or option pricing models, which require different inputs.
    • This is used for assets whose carrying value is based on mark-to-market valuations; for fixed assets carried at historical cost (less accumulated depreciation), the fair value of the asset is not used.
    • Common terms for the value of an asset or liability are fair market value, fair value, and intrinsic value.
    • The reason for not using the book value of the old asset to value the new asset is that the asset being given up is often carried in the accounting records at historical cost.
    • Differentiate between the absolute value, relative value, fair value and option pricing methods of valuing an asset

  • Political Values

    • Political cultures have values that are largely shared by their members; these are called political values.
    • A value system is a set of consistent values and measures.
    • A principle value is a foundation upon which other values and measures of integrity are based.
    • Types of values include ethical/moral values, doctrinal/ideological (religious, political) values, social values, and aesthetic values.
    • If a group member expresses a value that is in serious conflict with the group's norms, the group's authority may carry out various ways of encouraging conformity or stigmatizing the non-conforming behavior of its members.

  • Values as Binders

    • Values and value systems are guidelines that determine what is important in a society.
    • Types of values include ethical/moral value, doctrinal/ideological (religious, political, etc.) values, social values, and aesthetic values.
    • If a group member expresses a value that is in serious conflict with the group's norms, the group's authority may carry out various ways of encouraging conformity or stigmatizing the non-conforming behavior of its members.
    • Values can act as blinders if people take their own personal values (or their society's values) as universal truths and fail to recognize the diversity of values held across people and societies.
    • Values can act as blinders if people fail to recognize the diversity of values held across people and cultures, and assume their own society's values are universal truths.