The carrying value of a bond is the net amount between the bond’s face value and any un-amortized premiums or minus any amortized discounts. The carrying value is also commonly referred to as the carrying amount or the book value of the bond.
Because interest rates continually fluctuate, bonds are rarely sold at their face values. Instead, they sell at a premium or discount to par value depending on the difference between current interest rates and the stated interest rate for the bond on the issue date. Premiums and discounts are amortized over the life of the bond, so book value equals par value at maturity.
Calculating Carrying Value
The first step in calculating carrying value is to determine the terms of the bond. There are three characteristics of any bond that are needed: the bond’s par value, the interest rate and the time to maturity.
Then, it must be determined whether the bond is sold at face value, at a premium or at a discount. A bond with an interest rate that is equal to current market rates sells at par. If a bond's interest rate is above current market rates, the bond sells at a premium. If the interest rate of the bond is lower than the current market rate, it sells at a discount. The amount of time that has passed since the bond’s issuance must also be determined, as any premium or discount has to be amortized over the life of the bond.
It is necessary to know how much of the premium or discount has amortized to calculate the carrying value. Typically, amortization is on a straight-line basis; for each reported period, the same amount is amortized.
Calculating the carrying value of the bond, after gathering the aforementioned information, is a simple step of either addition or subtraction. The un-amortized portion of the bond's discount or premium is either subtracted from or added to the bond's face value to arrive at carrying value.