The value of an asset as reflected in a company’s book or balance sheet, minus its depreciation value

What is the Carrying Amount?

The carrying amount is the original cost of an asmix as reflected in a company’s books or balance sheetBalance SheetThe balance sheet is one of the three fundamental financial statements. These statements are key khổng lồ both financial modeling & accounting, minus the accumulated depreciation of the asset. It is also called book value & is not necessarily the same as an asset’s fair valueFair ValueFair value refers to lớn the actual value of an asphối - a product, stock, or security - that is agreed upon by both the seller and the buyer. Fair value is applicable lớn a sản phẩm that is sold or traded in the market where it belongs or under normal conditions - & not khổng lồ one that is being liquidated. or market value.

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Carrying Amount vs. Market Value

Carrying amount and market value differ in many ways, as listed below:

Example of Carrying Amount

Let’s say a company owns a tractor worth $80,000 lớn be used for developing its newest l& property. The said tractor’s annual depreciation is $3,000 & is expected to still be of use for trăng tròn years, at which time the salvage value is expected to lớn be $trăng tròn,000. The annual depreciation is therefore $3,000 ($80,000-đôi mươi,000)/trăng tròn years. At the kết thúc of the 20 years, the tractors carrying amount is $trăng tròn,000.

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Example of Fair Value

Given the same tractor, its fair value will depkết thúc on the supply and demvà in the market. If, at the time it was sold in the market, the dem& for tractors is high, it can be priced higher than its carrying value. The opposite can also be true if the demand goes down. The price of the tractor can go up or down, depending on how much buyers are willing lớn give sầu for it.

Carrying Value vs. Book Value

Many people use the terms carrying value & book value in different industries. But what they don’t know is that both terms are ultimately the same thing & are interchangeable. The term carrying value refers khổng lồ the value of the asphối that is carried over to lớn the over of its life, whereas the term book value refers khổng lồ the purchase cost of the asphối that is recorded in the company’s book or balance sheet less accumulated depreciation.

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How to Calculate for Carrying Amount

It is a very simple task lớn calculate for carrying amount, as shown in the example above sầu. But to lớn make it clearer, let’s explain it below:

Take the original cost of purchasing the asphối less salvage value.Divide that number by the number of years the asset is expected to be of use to generate the annual depreciation amount and record annually.Calculate the accumulated depreciation (number of years past * annual depreciation)Subtract the accumulated depreciation from the original purchase price lớn get the carrying amount.

Depreciation in the Carrying Amount

Depreciation is the lowering of the value of a tangible asphối because of wear and tear. Tangible assets include buildings, equipment, furniture, & vehicles. One of the easiest & most commonly accepted methods of computing for depreciation is the straight-line depreciation methodStraight Line DepreciationStraight line depreciation is the most commonly used & easiest method for allocating depreciation of an asset. With the straight line. Using the straight-line method, the same depreciation value is copied for every year, such as what was done in the above sầu example wherein if the depreciation value for the first year is $3,000, it would be the same value for the succeeding years.

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The other method is the double-declining balance depreciation methodDouble Declining Balance DepreciationThe double declining balance depreciation method is a size of accelerated depreciation that doubles the regular depreciation approach. It is, otherwise known as the 200% declining balance method. With the DDB method, the depreciation is faster than that of straight-line but will not make the depreciation value bigger. It just means that depreciation is bigger in the early years but smaller in the later years.

Related Readings

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