Learn something new every day
More Info... by email
Also known as book value, carrying value is the worth of an asset that is reflected in the accounting records of a business, notably on the company’s balance sheet. The value is normally based on the original price of the asset, after allowing for any amount of amortization, allowed depreciation, or any type of impairment that may be applicable. In addition to using the term to refer to the worth of specific assets as listed on the balance sheet, the term is also used to refer to the net worth of a company.
Carrying value is very different from market value. Market value has to do with the current price that the asset would bring on the open market. In contrast, carrying value is based on the original purchase price, allowing for any factors that may have decreased the value. This means there is likely to be a significant difference in the market value and the carrying value. For example, if a business purchased a parcel of real estate fifty years ago, and no factors have occurred to depreciate the land, the carrying value will be the original purchase price. At the same time, the market value of the real estate is likely to be much higher, owing to factors that drove up the demand for land in that area.
In some cases, the carrying value involves more than just the purchase price. For example, the purchase of a building and the surrounding property may involve paying the sale price for the assets, along with closing costs, fees paid to the realtor, paying off back taxes on the property, or any other expense incurred in the acquisition of the asset. Any and all expenses that are necessary to allow the investor to assume ownership of the asset can rightly be included in the calculation of the carrying value.
When the idea is to determine the overall carrying value of a business, it is necessary to identify all the assets currently in the possession of the company, basing the worth of those assets on current book values. From this figure, any liabilities such as outstanding debt or the value of long-term bonds issued by the company, are deducted. Depending on the accounting method that prevails in the area where the company is located, the value of intangible assets may also be subtracted from the value of the total assets. Calculating carrying value of this type is often used as a means of setting a sale price for the business, although some attention is also paid to the current market value of all assets, after subtracting any existing liabilities.