Carrying value is an accounting measure of value in which the value of an asset or company is based on the figures in the respective 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, then the formula for carrying value is (original cost – amortization expense).
- Carrying value is a measure of value for a company’s assets.
- Carrying value is typically measured as the original cost of the asset, minus any depreciating factors. The depreciating factors for an asset vary based on the nature of the asset.
- Some assets, such as land, are not considered depreciable.
- Rates of depreciation for an asset are influenced by the calculations of the company by which it is owned.
How Carrying Value Works
Carrying amount, also known as carrying value, is the cost of an asset less accumulated depreciation. The carrying amount is usually not included on the balance sheet, as it must be calculated. However, the carrying amount is generally always lower than the current market value.
Accounting practice states that original cost is used to record assets on the balance sheet, rather than market value, because the 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, the carrying value of that asset is the original cost of its purchase. However, over time, the value of an asset will change.