Carrying ValueDefined along with Examples

Written By:
Lisa Borga

What is Carrying Value?

Carrying value is an accounting concept that can be used to measure an asset or a company’s current value.

When determining the carrying value of intellectual property, such as a patent, the value will be determined by subtracting the amortization expense from the asset’s original cost.

Whereas if the carrying value of a physical asset is being calculated, the asset’s accumulated depreciation will be subtracted from the original cost of the asset.

Explanation of Carrying Value

Carrying value which is also sometimes called the carrying amount is the amount an asset costs minus its accumulated depreciation.

Carrying value is not typically shown on the balance sheet.

Therefore, this value needs to be calculated.

But, it can typically be assumed that the value will be lower than the asset’s current market value.

According to accounting practices, the original cost of an item is used when recording assets on a business’s balance sheet instead of its market value.

This is done due to the fact that the original cost of an asset can be found on a purchase document.

Whereas, the market value of an item tends to be more subjective.

When an asset is first purchased, its carrying value is the cost of the asset.

But, this value will change over time.

Amortization and depreciation expenses are used in businesses to show the change in the value of an asset as the business uses it to produce revenue.

It is important to remember that although buildings can be depreciated, land cannot.

This is due to the fact that there is no limit on the useful life of land, so the value of land will not decline over time.

However, improvements can be made to land as well as the equipment and buildings on the land.

Therefore, the carrying value of land that a business owns can depreciate.

Carrying Value Example

Suppose Jack’s Medical Transport Company purchased a van for $50,000 to transport non-emergency patients to medical appointments.

Jack’s accountant would add the van as an asset to the company’s books.

The van is assigned a useful life of five years.

The salvage value of the van is expected to be $5,000.

The salvage value is the amount the asset is expected to be worth when its useful life ends.

Jack’s Medical Transport chooses to depreciate the van using the straight-line depreciation method.

The depreciable base of the van is calculated by taking the cost of $50,000 and subtracting the $5,000 salvage value to give a value of $45,000.

The depreciation can be calculated by dividing the $45,000 by five years.

This gives an annual depreciation rate of $9,000.

The carrying value of the van will be different every year due to the change in value that results from the depreciation being posted each year.

At the end of the first year, the van’s carrying value can be calculated by subtracting the $9,000 in accumulated depreciation from the $45,000 depreciable base of the van.

This gives the van a carrying value of $36,000 at the end of the first year.

The carrying value of the van at the end of the second year would be $27,000 ($45,000 – $18,000).

The company’s balance sheet will have a fixed asset section that shows each tangible asset paired with its accumulated depreciation account.

At the end of the second year in which Jack’s Medical Transport has owned the van, the balance sheet will show the van with a value of $45,000 and the accumulated depreciation-van account with a balance of $18,000.

Thus, investors could see that the carrying value of the van would be $27,000.

Key Takeaways

• Carrying value is generally measured using the asset’s original cost after subtracting depreciating factors.
• Not all assets are depreciable. An example of this would be land.
• The rate of depreciation used for an asset is affected by the way in which the company chooses to calculate its depreciation.
• The carrying value is the value of an asset as it appears on a business’s balance sheet.