Net carrying amount definition
/What is Net Carrying Amount?
Net carrying amount refers to the current recorded balance of an asset or liability, netted against the amount in the contra account with which it is paired. The concept usually refers to the pairing of fixed assets and accumulated depreciation, where the net of these two items is the net carrying amount of fixed assets. In the case of intangible assets, net carrying amount refers to the pairing of intangible assets and accumulated amortization.
A sample presentation of net carrying amount is highlighted in the following exhibit, which extracts the fixed asset information from a balance sheet.
The Difference Between Net Carrying Amount and Market Value
Net carrying amount is the amount of an asset, reduced by the contra account with which it is paired. This represents a formula-based reduction in the recorded cost of the asset or liability; it is not related in any way to market value, which can rise or fall over time, depending on the forces of supply and demand.
Example of Net Carrying Amount
For example, a fixed asset has a current recorded balance of $50,000, and there is $10,000 of accumulated depreciation in the contra account with which it paired. This means that the net carrying amount of the asset is $40,000. Similarly, if a bond liability has a current recorded balance of $250,000 and there is $20,000 of a discount on bonds payable that is linked to the same bond, then the bond's net carrying amount is $230,000.
FAQs
How Does Impairment Affect Net Carrying Amount?
Impairment reduces the net carrying amount of an asset when its recoverable amount falls below its book value. The asset is written down to its recoverable amount, and the impairment loss is recorded in the income statement. This ensures the asset is not overstated on the balance sheet relative to its economic value.