Trending September 2023 # How To Calculate Carrying Value (Definition, Formula) # Suggested October 2023 # Top 9 Popular | Lifecanntwaitvn.com

# Trending September 2023 # How To Calculate Carrying Value (Definition, Formula) # Suggested October 2023 # Top 9 Popular

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Definition of Carrying Value

Explanation

The CV method is one method to determine an asset’s current value. It is based on the current book value of the asset. Usually, the CV of an asset is lower than the fair or market value. For the assets, the initial book value is recorded in balance sheets. Then based on the estimated life and depreciation method, depreciation is calculated on the asset after each period. The CV of assets is the net book value of assets after subtracting the accumulated depreciation from the initial cost. This value can be much different from the asset’s current market or fair value, which is estimated using current market conditions.

Formula

The CV is the asset’s book value, calculated by deducting accumulated depreciation from the asset’s initial cost.

Carrying Value (book Value) = Initial Cost of The Asset – Accumulated Depreciation

How does it Work?

CV is the cost of the asset after reducing accumulated depreciation. Usually, it is not shown in the balance sheet but can easily be calculated.

When an asset is bought, its original cost is recorded on the balance sheet. This original cost can be linked back to the buying receipt of the asset. Then, based on the asset’s useful life and the appropriate depreciation formula, some depreciation or amortization is attached to the asset each year. CV or book value at any time will be the asset’s initial cost minus accumulated depreciation. Note that buildings, plants, etc .are depreciation assets, but the land are not a depreciation asset. This CV can be very different from the asset’s fair value because the fair value will be dependent on the current market condition and subjective.

Examples

Initial Cost \$1,200,000

Useful life in years 10

Year

Yearly Depreciation

Accumulated Depreciation

Carrying Value

2006 \$120,000 \$120,000 \$1,080,000

2007 \$120,000 \$240,000 \$960,000

2008 \$120,000 \$360,000 \$840,000

2009 \$120,000 \$480,000 \$720,000

2010 \$120,000 \$600,000 \$600,000

2011 \$120,000 \$720,000 \$480,000

2012 \$120,000 \$840,000 \$360,000

2013 \$120,000 \$960,000 \$240,000

2014 \$120,000 \$1,080,000 \$120,000

2023 \$120,000 \$1,200,000 \$0

For 2006

** Carrying Value is calculated as

Carrying Value = Initial Cost – Accumulated Depreciation

CV = \$1,200,000 – \$120,000

CV = \$1,080,000

Similarly calculated for all years

Your company has bought new HP laptops for the employees at \$1,200 per laptop. You have assumed the useful life of the laptops as 3 years. Below are the depreciation schedule and CV of the laptops each year.

Initial Cost \$1,200

Useful life in years 3

Year

Yearly Depreciation

Accumulated Depreciation

Carrying Value

0 \$0 \$0 \$1,200

1 \$400 \$400 \$800

2 \$400 \$800 \$400

3 \$400 \$1,200 \$0

CV = Initial Cost – Accumulated Depreciation

Carrying Value = \$1,200 – \$0

= \$1,200

Carrying Value of A Bond

The CV of the bond can also be mentioned as the book value of the bond. A company usually issues bonds at a premium or discount of the face value. Carrying value can be defined as the difference between the face value of the bond and the unamortized portion of the premium or discount. For example, a company issues bonds with a face value of \$1,000 at a \$20 discount.  So to calculate the carrying value, the first unamortized portion of this discount is calculated at any period. Then the carrying amount of the bond at that time can be calculated as the difference between the face value and the unamortized portion of the discount.

Difference between Carrying Value and Fair Value

CV is based on the asset’s book value, which depends on the asset’s initial cost and depreciation schedule. The fair value of the asset is the current market value of the asset. For example, let’s assume an asset bought at \$1,000,000 in 2023 has a carrying value of \$500,000 as per the books. But the fair value of the same asset can be \$800,000, which depends on the current market estimate and is subjective. Usually, the asset’s fair value has a higher value than the carrying value.

Conclusion

CV is an important concept in accounting principles. With CV calculation, the investor can find out the asset’s remaining useful life and decide on the firm using this calculation. But it needs to remember that carrying value is not the true value of assets per the market estimates.

Recommended Articles

This is a guide to Carrying Value. Here we also discuss the definition and how carrying value works. Along with examples. You may also have a look at the following articles to learn more –

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