The carrying value refers to the reported cost of the assets that a company owns. This means that the carrying value is the value of the assets shown in the company’s balance sheet or books of accounts, less the sum of depreciation (Also see Straight-line Depreciation and Accelerated Depreciation) based on the assets’ useful life. Thus, we can also say that the carrying values of the assets are the same as their book values.
When the accountants from an accounting firm in Johor Bahru are preparing the financial statements for the business owners, they will include the carrying value of assets in the company’s balance sheet too. To calculate the carrying value of fixed assets, the accountants will subtract the accumulated depreciation or any impairment losses from the original costs of those assets. For intangible assets, they will take the actual costs of the assets, less the accumulated amortisation (Also see What is Goodwill Amortisation?) or any impairment losses to arrive at their carrying value.
Now, we know that the carrying value of assets is equal to their original price less the sum of accumulated depreciation. So, let’s look at the example below:
XYZ Corporation has a machine with a value of RM250,000, and it always uses that machine to manufacture certain products. The yearly depreciation value of the machine is RM15,000, and its useful life lasts for 12 years.
Thus, to calculate the carrying value of that machine, XYZ Corporation should first calculate the value of accumulated depreciation, that is, it needs to multiply RM15,000 with 12 years. The resulting amount will be RM180,000. Then, it should minus this amount from the original price of that machine to arrive at the machine’s carrying amount (RM250,000 – RM 180,000). Thus, the machine’s carrying value is RM70,000.
Some people may feel that the carrying value and fair value (Also see Introduction to Fair Value Accounting) are quite confusing. However, both of them actually have significant dissimilarities from each other. The carrying value is the actual value of the assets, and it is based on the balance sheet of the company. On the other hand, the fair value refers to the value of an asset that people would sell at the market. One should use mark-to-market accounting to calculate the fair value of the assets. Hence, we can say that the carrying value is based on the asset’s historical cost, while the fair value is based on the market price (Also see What Do Market Value and Book Value Mean?) of that asset.
In conclusion, the calculation of carrying value is one of the accounting measures that people can use to determine the value of an asset based on the values recorded in the balance sheet. Also known as book value, the carrying value of an asset can be calculated by subtracting the accumulated depreciation and impairment expenses from its original cost. Fair value, on the contrary, is a value that reflects the market price of an asset.