Loading the player...

What is 'Carrying Value'

A carrying value is an accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance sheet. For physical assets, such as machinery or computer hardware, carrying cost is calculated as (original cost - accumulated depreciation). If a company purchases a patent or some other intellectual property item, the formula for carrying value is (original cost - amortization expense).

BREAKING DOWN 'Carrying Value'

Accounting practice states that original cost is used to record assets on the balance sheet, rather than market value, because original cost can be traced to a purchase document, such as a receipt. Market value is more subjective. At the initial acquisition of an asset, its carrying value is the original cost of its purchase. However, over time, an asset's value will change. Both depreciation and amortization expense are used to recognize the decline in value of an asset as the item is used over time to generate revenue.

How Depreciation Works

Assume ABC Plumbing buys a $23,000 truck to perform residential plumbing work, and the accounting department creates a new plumbing truck asset on the books with a value of $23,000. Because of the amount of mileage driven and other factors, the truck is assigned a useful life of five years. Salvage value is the remaining value of the asset at the end of its useful life. ABC decides to depreciate the asset on a straight-line basis with a $3,000 salvage value. The depreciable base is the $23,000 original cost minus the $3,000 salvage value, or $20,000. The annual depreciation is the $20,000 divided by five years, or $4,000 per year.

The Differences Between Carrying Values

The carrying value of the truck changes each year because additional depreciation is posted each year. At the end of year one, the truck’s carrying value is the $23,000 minus the $4,000 accumulated depreciation, or $19,000, and the carrying value at the end of year two is ($23,000 - $8,000), or $15,000. In the fixed asset section of the balance sheet, each tangible asset is paired with an accumulated depreciation account. At the end of year two, the balance sheet lists a truck at $23,000 and an accumulated depreciation-truck account with a balance of -$8,000. A financial statement reader can see the carrying amount of the truck is $15,000. Note that, while buildings depreciate, land is not a depreciable asset.

RELATED TERMS
  1. Accumulated Depreciation

    Accumulated depreciation is the cumulative depreciation of an ...
  2. Salvage Value

    Salvage value is the estimated value that an owner is paid when ...
  3. Fully Depreciated Asset

    A fully depreciated asset is a property, plant or piece of equipment ...
  4. Economic Depreciation

    Economic depreciation is a measure of the decrease in value of ...
  5. Capitalize

    To capitalize is to list a cost/expense on the balance sheet ...
  6. Straight Line Basis

    A straight line basis is a method of computing depreciation by ...
Related Articles
  1. Investing

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  2. Taxes

    Recoverable Depreciation: How it Works

    Recoverable depreciation is a concept used in many insurance policies and claims.
  3. Financial Advisor

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  4. Taxes

    Filling out Form 4562, step-by-step

    Step-by-step, how to fill out the depreciation and amortization form for your business tax return.
  5. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  6. Investing

    Using The Price-To-Book Ratio To Evaluate Companies

    The Price-To-Book (P/B) ratio can be an easy way to determine a company's value, but it isn't magic!
  7. Investing

    Investment Value Vs. Fair Market Value: How They Differ

    Learn about the differences between an asset's investment value and its fair market value, including why many think fair market value is unrealistic.
  8. Investing

    How to Evaluate a Company's Balance Sheet

    Asset performance shows how what a company owes and owns affects its investment quality.
  9. Investing

    How Is Impairment Loss Calculated?

    Impairment loss is the decrease in an asset’s net carrying value that exceeds the future undisclosed cash flow it should generate.
RELATED FAQS
  1. What is the tax impact of calculating depreciation?

    Understand the tax implications of a company's depreciation. Learn how differences in accounting methods change the amount ... Read Answer >>
  2. What is the relationship between accumulated depreciation and depreciation expense?

    Understand the relationship between accumulated depreciation and depreciation expense. Learn how each one is accounted for ... Read Answer >>
  3. Does accumulated depreciation affect net income?

    Accumulated depreciation is a running total of the depreciation expense that has been recorded over the years. However, it ... Read Answer >>
  4. What's the difference between amortization and depreciation?

    Learn the difference between amortization, depreciation, and depletion and how companies use these accounting methods to ... Read Answer >>
  5. What is the difference between carrying value and fair value?

    Learn about the carrying value and fair value of assets and liabilities, what the carrying and fair value measure and the ... Read Answer >>
  6. What are some examples of the main types of capital expenditures (CAPEX)?

    Learn about different expenses with acquiring assets that are considered capital expenditures and should be depreciated over ... Read Answer >>
Trading Center