Amortized value definition
/What is Amortized Value?
Amortized value is the recorded amount of a security, adjusted for any applicable amortization of premium or discount. The premium or discount is the excess or reduced amount, respectively, that an investor pays the issuer of a security, which adjusts the effective interest rate of the security that will be earned by the investor. Eventually, once all amortization has been recorded, the amortized value of a security will equal its face value.
Presentation of Amortized Value
The amortized value of a security appears on the reporting entity’s balance sheet. It usually appears in the Marketable Securities line item, and is classified as a current asset. A sample presentation is highlighted in the following exhibit.
Example of Amortized Value
A bond has a face value of $1,000, but investors buy it from the issuer for $950 in order to derive a greater effective interest rate. The issuer initially records the sold bond at its $950 sale price, and then gradually amortizes the $50 difference between the face value and sale price, until the recorded amount of the bond equals the face amount of $1,000. Thus, over the amortization period, the amortized value of the bond will gradually increase until it reaches $1,000.
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FAQs
How Does Amortized Value Differ From Fair Value?
Amortized value is based on the original cost of an asset or liability, adjusted over time for amortization of premiums, discounts, or principal repayments. Fair value, on the other hand, reflects the price at which the asset or liability could be exchanged in the current market. While amortized value follows a cost-based allocation, fair value is market-driven and can fluctuate with economic conditions.